March 3, 2021

Germany studies the repetition of the «kindergarten bonus» in 2021 to help families with children


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Germany paid 300 euros per child directly to families in 2020, as a measure to alleviate the difficulties caused by the pandemic. Was an aid free of bureaucracy, a direct transfer to bank accounts that receive the monthly universal subsidy called Kindergelg and that could be repeated in 2021. That is at least the proposal that the Social Democratic Party takes today to the first meeting held by the German grand coalition after the vote of Armin Laschet as Merkel’s successor as head of his party, the Christian Democratic Union (CDU). And the German conservative party is expected to welcome the proposal, since it has turned out to be one of the most effective measures for economic activation of all those implemented.

The president of the SPD, Saskia Esken, demands another bonus per child at least for low-income families. “I have the clear expectation that today we will talk about a new edition of the children’s voucher,” he said before entering the meeting, “it is exactly what we need.” The president of the SPD, Norbert Walter-Borjans, has advanced that the new aid should not be below 200 euros. But beyond the political statements, it is the economists who underline the effectiveness of the measure. A study by the Hans Böckler Foundation confirms that the child voucher paid in the fall of 2020 “has effectively boosted the consumption of private households during the pandemic.” In a joint work with the Research Institute of Macroeconomics and Business Cycle (IMK), close to the German unions, it has established that 37% of those surveyed had already spent the entire bonus on November 27. Another 27% had partially spent it. 51% of the funds disbursed was earmarked for private consumption and the rest was saved or used to pay debts.

With around 18 million children who are entitled to the family benefit, the 2020 “kindergarten bonus” injected some 2,800 million euros into the consumer economy, as IMK calculations show. Given that the federal government invested a total of 4.3 billion euros, the relationship is even more fruitful than the reduction of VAT from 19% to 16%, which according to the Ministry of Finance cost the German state 20 billion euros. In the IMK survey, less than 30% declared having made consumption decisions based on that reduction. 79% of those surveyed admitted that it had no noticeable impact on their consumer behavior, only 16% used the tax cut to advance planned purchases and 4.5% to make additional purchases. In the case of households with more than 4,500 euros of rent per month, only about 45% was used for consumption.

If the aid is repeated in 2021, the Ifo Institute for Economic Research in Munich forecasts an average effect of around 152 euros of consumption per household. This would lead to an additional expense of around 6.3 billion euros, roughly a third of the cost of the VAT reduction.

The IMK also concludes that only households with higher incomes have so far used the VAT reduction to make additional purchases and that households without children how they would use a hypothetical one-time payment of 500 euros spending an average of around 41% of those additional income . For the study, the Hans Böckler Foundation surveyed 6,100 employees and job applicants twice: once in spring 2020 and again in November, after the child allowance was paid. Among those surveyed there were 1,509 households that received the voucher.

The CDU also enters the meeting with its own proposals under its arm, including a relief for burdened companies. A company with losses related to the pandemic should be able to make up for them with the 2019 profits on their tax return, that’s the initial idea. And from outside the grand coalition different ones are heard. The Los Verdes party, for example, complains that direct aid is limited only to families with children and suggests a universal payment of 100 euros to each citizenor, according to the spokesman for social policy of the Green parliamentary group, Sven Lehmann. “100 euros per adult and 60 euros per child would be a more equitable help,” he argues.

Family associations celebrate this whole range of proposals to increase basic security and demand a permanent increase in basic aid to 600 euros per month per family nucleus. “This should be seen as soon as possible better, because we are in an election year and after the voting this wave of generosity will surely diminish,” they ironically from the Deutsche Familienverband Family Federation.

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