Unexpected Surplus

Operation Squirrel

BA Frank Juergen Weise PR
Federal Employment Agency boss, Frank-Jürgen Weise, is watching his money closley.
  • Why it matters

    Why it matters

    The agency wants to hold the surplus funds in reserve in case of bad times ahead, while critics say social insurance contributions should be reduced instead.

  • Facts

    Facts

    • The German Federal Employment Agency will end the current year with a surplus of €3.5 billion.
    • Critics say the refugee crisis will cost the government more money and thereby create a need for surplus funds.
    • The agency’s total reserve is expected to reach €9.5 billion by the end of 2016.
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    Audio

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Sometimes it makes sense to make yourself seem poorer on paper than you really are.

German Finance Minister Wolfgang Schäuble knows this, as it’s the only way he can fend off greedy demands from his cabinet colleagues.

Frank-Jürgen Weise, head of the German Federal Employment Agency, or BA, is also careful with his money. After all, any surplus in his agency’s coffers creates an appetite for a reduction in unemployment insurance contributions, especially in times of rising health insurance and nursing care insurance premiums.

But as the year comes to an end, Mr. Weise must also put his cards on the table. During the quiet holiday season, he announced that the agency will end the current year with a surplus of €3.5 billion, or $3.85 billion, instead of the €400 million originally expected.

Does this mean a reduction in the contribution to unemployment insurance, which has been 3 percent of gross income since 2011?

“Consistently lower contribution rates are key,” said Oliver Zander, managing director of the Federation of German Employers’ Associations in the Metal and Electrical Engineering Industries and a member of the BA supervisory board. “That’s what the surplus must be used for.”

“A further reduction in the unemployment insurance contribution is only advisable if sufficient reserves are available.”

Peter Clever, Employers' Representative on BA board

Mr. Zander is going out on a limb more than anyone else with this statement.

Carsten Linnemann, the head of the center-right Christian Democratic Union’s small business association, said he sees “a certain latitude for contribution reductions.” But this latitude, he added, will be reduced next year, as the Federal Employment Agency and the government are underestimating the costs of the refugee crisis.

Given the continued large numbers of migrants and refugees entering Germany and economic uncertainty in countries like China, an “Operation Squirrel” to create a cushion for leaner times is in fact called for.

The Confederation of German Employers’ Associations, German Federation of Trade Unions board member Annelie Buntenbach, metalworkers’ union IG Metall board member Hans-Jürgen Urban, who is responsible for social policy, and the federal labor ministry are all calling for suitable reserves for unemployment insurance, noting that it is more sensitive to cyclical fluctuations than other branches of social welfare insurance.

At the end of the year, the BA will have a financial cushion of about €7.8 billion. Mr. Weise expects a surplus of €1.8 billion for next year, which would bring the reserve to €9.5 billion by the end of 2016. This amounts to 30 percent of the agency’s total annual expenditures.

 

A Success Story-01 (2)

 

The cushion is not too thick by any means, according to Peter Clever, a member of the BA supervisory board representing the employers association. “A further reduction in the unemployment insurance contribution is only advisable if sufficient reserves are available, reserves that can also provide reliable financing in a recession,” he said. In the last financial crisis, he added, even €17 billion was not enough, because the BA was called upon to provide massive short-time working benefits.

This argument doesn’t convince economists like Alfred Boss, a financial expert in the northern city of Kiel. “The contribution needs to be reduced,” he said. He has been calling for a reduction for some time, partly in light of rising unit labor costs, which have increased by a seasonally adjusted 10 percent since 2010.

Reducing the unemployment contribution by 0.3 points to 2.7 percent would reduce the BA’s revenues by about €3 billion. Given that the economy is in a normal state (an assessment the federal government shares), the BA’s balance sheet is free of economic influences. In other words, said Mr. Boss, there is no reason for the BA to be achieving surpluses.

The high refugee numbers are also not an argument for the Kiel economist, who believes that the large-scale immigration will “have little impact” on the BA’s finances. The reason is that refugees with the right of residence are entitled to government social benefits, but not to unemployment benefits provided by the BA. Besides, the agency job centers, which are funded with taxpayer money, also bear the costs of integration into the labor market for refugees whose cases have been decided.

However, the opposition fears that the BA’s large financial cushion would awaken desires among politicians and be misused to pay for government expenditures. “It needs to be carefully separated,” said Brigitte Pothmer, the labor market policy spokeswoman for the Green Party.

Several months ago, the BA supervisory board, which consists of employer, labor and public sector representatives with equal voting power, decided to use up to €50 million from the so-called intervention reserve to integrate asylum seekers and immigrants into the labor market. It turned out to be a godsend when the BA stepped into the breach to pay for language courses for refugees, according to Mr. Pothmer. “But it cannot be a permanent state of affairs for the BA to use its contribution funds to pay for tasks for which the actual labor minister, Andrea Nahles, ought to be responsible,” he said.

Metal industry employers’ association director Zander also insists that the costs of the refugee crisis be paid out of the federal budget, “but certainly not by those paying the contributions.”

The German political world still remembers how politicians have always managed to find ways to spend surpluses in the social welfare system. The coalition government of the center-right Christian Democrats and the center-left Social Democrats most recently demonstrated this by reducing the retirement age at 63 and introducing the so-called “mother pension.” It enacted a law to suspend a reduction in pension contributions, which was in fact overdue, preferring to use the money to pay for expensive campaign gifts.

At the labor ministry, however, officials are quick to point out that the unemployment insurance contribution was reduced from 6.5 percent in 2006 to 2.8 percent in 2009 and, in 2011, was slightly increased to 3 percent. According to a source close to Ms. Nahles, there are currently no plans to reduce contributions. “Instead, we are creating reserves for an economic downturn,” the source said.

 

Peter Thelen reports from Berlin on the social security system and industrial relations, Axel Schrinner covers fiscal policy, Frank Specht covers the labor market. To contact the authors: thelen@handelsblatt.com, schrinner@handelsblatt.comspecht@handelsblatt.com.

 

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