Transcript Kein Folientitel - Social security

Financing of Social Protection in
Germany: recent developments and
debate
Philip Manow, MPIfG Cologne
Outline of the talk
1. Germany as an outlier – a generous welfare state with low taxes and high
social insurance contributions
2. How social insurance contributions came to be so important
3. Why social insurance contributions came to be so problematic - the
unemployment dilemma of the continental welfare state
4. The current reform debate
2
How is the welfare state financed?
1. The more residual anglo-saxon welfare state is financed with a mixture of
moderate indirect and direct taxes, social insurance contributions play no
significant role.
2. The generous continental welfare states put the main financial burden on
payroll taxes, i.e. social insurance contributions levied on wages and often paid
to equal shares by employer and employees.
3. The most generous Scandinavian welfare states rely on high direct and indirect
taxes, social insurance contributions play a minor (if increasing) role.
3
The tax mix in 17 OECD countries, 1998
Share of social
insurance
contributions
plus indirect
taxes of total
revenue
Anglo-saxon
Aust ralia
Canada
UK
New Zealand
USA
0.42
0.52
0.57
0.37
0.56
average
0.49
continental
scandinavian
Aust ria
0.72 Denmark
Belgium 0.64
Finland
Germany 0.75
Norw ay
Spain
0.71
Sw eden
France
0.75
It aly
0.67
Net herlands 0.74
Port ugal 0.76
0.72
0.41
0.61
0.53
0.63
0.54
4
The tax-mix in Germany as compared to scandinavian
or liberal welfare states
In % of
GDP,
2000
Tot al Tax All Taxes
Burden
Social
Insurance
Cont ribut ions
Denmark
49.0
46.5
2.5
Germany
37.8
23.0
14.8
UK
37.2
31.1
6.1
USA
29.7
22.8
6.9
Source: OECD, Revenue St at ist ics, 2002
5
Revenue from income and capital taxation
Revenue f rom
income and capit al
t axat ion
% of GDP in 2000
France
Germany
Sw it zerland
UK
USA
Aust ralia
New Zealand
Sw eden
Denmark
11.3
11.4
13.8
14.6
15.1
18.0
20.8
23.4
28.7
6
How social insurance contributions came to be
so important - the German development
1. Two critical periods – the early 1970s and German unification
2. Conflicting targets - budget consolidation versus lower non-wage labor costs
3. German veto structures: German Länder have a veto in all questions of
taxation, but (usually) not in social policy
7
Graph 2 Social Expenditure and Contribution
Rates, Germany 1960-2003
45.00
40.00
35.00
in %
30.00
25.00
20.00
15.00
10.00
5.00
0.00
1960
1970
1980
1990
1995
2000
2003
Year
Total Social Expenditure as Share of GNP
Contribution Rates to Social Insurances as Share of
Gross Wage
8
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
04
98
01
92
95
86
89
80
83
74
77
68
71
62
65
56
59
50
53
social insurance contributions as share of GDP
Social insurance contributions as a share of
total GDP, Germany 1950-2005
25.00
20.00
15.00
10.00
5.00
0.00
9
Financing German Unification via the welfare
state
Public t ransf ers f or East Germany, 1991-1997
Billion DM
Unemployment
insurance
Old age insurance
Sum
Tot al net t ransf er
Social insurance
t ransf er in per cent
of t ot al net
t ransf er
a
b
1995 1996 1997
1991
1992
1993
1994
24
25
15
17
16
16
18
–
24
106
5
30
115
9
24
129
12
29
125
17
33
140
18
34
134
16
34
130
22.64 26.09 18.60 23.20 23.57 25.37 26.15
a
Dat a based on t he 1996 budget and t he budget ary draf t f or
1997 of t he Government of t he Federal Republic of Germany.
Source:
Deut sche Bundesbank (1996: 19); Ragnit z (2003).
10
0.65
social insurance and private contributions
fiscal share public versus private
0.60
0.55
0.50
0.45
0.40
0.35
federal state and states
0.30
0.25
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
11
Development of the German tax mix since 1965
In % of
GDP
Tot al Tax
Burden
All t axes
Social
Insurance
Cont ribut ions
1965
32.8
23.0
9.8
1970
34.4
22.8
11.6
1975
38.5
23.5
15.0
1980
40.1
24.6
15.5
1985
40.0
23.8
16.2
1990
39.1
23.1
16.0
1995
40.9
23.1
17.7
2000
40.6
23.0
17.6
2002
38.2
20.8
17.4
Source: St at ist isches Bundesamt , Inst it ut der
Deut schen Wirt schaf t
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Why social insurance contributions came to be
so problematic - taxes vs. Contributions, what
are the economic consequences?
1. Social insurance contributions are particular regressive taxes – they are fully
levied on the first Euro and they are not levied on higher incomes (either
because there is an upper limit to which contributions are due, or because
higher income earners can leave social insurance and insure themselves
privately)
2. Social insurance contributions tend to be levied from a much smaller ‚risk
group‘ - the dependently employed only – and tax only one source of income:
wages and salaries
3. As they are levied from wages, social insurance contributions have adverse
labor market effects, especially for the low income segment close to the
‚(social) reservation wage‘
13
The unemployment dilemma of the continental
welfare state (Scharpf 2001)
14
19
74
19
76
19
78
19
80
19
19 82
84
2)
19
86
19
88
19
90
19
92
19
19 94
96
4)
19
98
20
20 00
02
20 p
04
p
obligatory insured employment as a percentage of
total employment
Germany‘s ‚insured employment‘ as a share of
total employment, 1974 - 2004
0.92
0.9
0.88
0.86
0.84
0.82
0.8
0.78
15
Service Sector Employment – ISIC 8, Finance,
Insurance, Real Estate, and Business Services
30
1979
1989
Fr
UK
2000
25
20
15
10
5
0
Swe
Den
Nor
Fin
Nth
Ger
It
Asl
US
Can
16
Service Sector Employment – ISIC 6, Wholesale
and Retail Trade, Restaurants, and Hotels
30
1979
1989
Fr
Asl
2000
25
20
15
10
5
0
Nor
Den
Swe
Fin
Nth
Ger
It
US
Can
UK
17
Service Sector Employment – ISIC 9,
Community, Social, and Personal Services
30
1979
1989
Fr
US
2000
25
20
15
10
5
0
Nor
Swe
Den
Fin
Nth
Ger
It
UK
Can
Asl
18
Growth of service sector employment and tax burden on wages
Payroll and Consumption Taxes
2000 minus 1979 (%)
19
Nth
14
Nor
US
Asl
UK
Den
9
Can
It
GER
Fin
Swe
4
10
15
20
25
30
Payroll and consumption tax revenues (% of GDP)
19
The current reform debate – substituting
contributions with taxes
1. Reversing the trend: Green tax, tobacco tax and VAT - and the income tax?
2. ‚Versicherungsfremde Leistungen‘ or tax-elements within an insurance regime
– health insurance and active labor market policies
3. Employment effects of tax-financing – positive but dependent on wage policy
and on types of taxes
4. Progressive social insurance contributions?
20
Eco-tax, tobacco tax and VAT
- transfers to the social insurance
schemes
Year
1999
2000
2001
2002
2003
2004
2005
2006
2007
Eco tax Tobacco tax – VAT – transfer
transfer to the transfer to
to the
pension
the health unemployment
insurance
insurance
insurance
(million Euro) (million Euro)
4500
8400
11.200
13.700
16.100
16.000
1.000
…
2.500
…
4.200
ca. 1.500
ca. 7.300
21
Employment effects?
1. Scenarios depend on assumptions about wage policy and on assumptions
whether indirect or direct taxes substitute for social insurance contributions
2. Estimation of employment effects range between -17.000 and +129.000 jobs
for a 1 percentage point decrease of social insurance contributions; lowering
social insurance contributions stronger for lower wage groups would lead to
significantly higher employment effets
22