The German “traffic light” coalition government is preparing for a massive shakeup of the current system of unemployment benefits, replacing the long-term unemployment benefit Hartz IV with a new “citizens’ allowance” (Bürgergeld). Here’s what has been announced about the reform so far. 

Unemployment benefit system in Germany to be overhauled

Last week, Federal Labour Minister Hubertus Heil laid out his plans for restructuring unemployment benefits from January 1 next year. The change will see the controversial Hartz IV unemployment benefit (Arbeitslosengeld II) - which was implemented by the SPD back in 2002 - replaced with a new allowance called Bürgergeld (citizens’ allowance).

The reform is centred around the idea that the unemployment support system should be fair and encourage people who have lost their jobs back into work, rather than treating them harshly or even punishing them by cutting their benefits - a practice known as “sanctions” under the current system. Factions within the SPD have long been uneasy about this tough approach, which is considered by many to be at odds with the party’s philosophy of a caring welfare state.

“We are replacing the basic security with a new citizen’s income, so that the dignity of the individual is respected and social participation is better promoted,” the Bürgergeld draft law states. 

Job seekers to be treated more kindly under new system

From January 1, 2023, therefore, the approximately 3,5 million Hartz IV claimants in Germany will be transferred over to the new Bürgereld system. Heil’s vision is to create a fairer system under which job seekers will be treated more compassionately and generously, to allow them to concentrate on getting back to work as quickly as possible. 

Housing and assets can be excluded from calculations for first two years

Concretely, this will see some changes in the way a claimant’s assets are treated for benefits calculations. For the first 24 months, housing and up to 60.000 euros of assets will be excluded from calculations, meaning people won’t need to worry about being asked to use up their savings or to move house to receive benefits. According to Heil, this should eliminate extra concerns and allow claimants to focus on finding a job.

Students, trainees and schoolchildren will also be allowed to earn up to 520 euros per month on top of the basic income, without it affecting their eligibility. 

Sanctions to remain but “trust period” applies

On top of this, Heil wants to reform the controversial sanctions system. Currently, anyone who fails to comply with the expectations set out for them by the job centre - for instance attending appointments or applying for positions recommended to them - can have their benefits cut by up to 30 percent.

The new system will see recipients benefit from a six-month “period of trust” when they first start receiving Bürgergeld. During this time, payments cannot be cut. After this grace period ends, sanctions will exist, but the culture surrounding them will be different: job centre appointments will still be compulsory - and sanctions will exist for people who repeatedly miss them - but they should be made more flexible and informal, and therefore easier to attend.

Further changes to the system include the creation of more opportunities and incentives for further education and training. The basic benefit rates are also set to be increased from January 1, 2023, to reflect the high inflation rate in Germany. 

Draft law still needs Bundestag and Bundesrat approval

The changes have been welcomed by social organisations in Germany, who said the time was right to overhaul the country’s unfair and outdated unemployment support system.

However, questions and issues still remain open among the partners of the coalition government: the Greens have long been calling for sanctions to be abolished entirely, while the FDP insists that the principle of solidarity is an essential part of the system. There are also some question marks over how the entire system will be financed.

The draft law will be put to the cabinet in September, before heading to the Bundestag and the Bundesrat for final approval. Pending possible changes, it should come into effect from January 2023.