In September 2025, a welfare state commission set up by the Union and the SPD began its work. Their reform proposals are expected in the next few weeks. Representatives from the federal government, states, municipalities and experts should present ideas on “how administrative processes can be accelerated, which services can be combined under certain circumstances and how applications and processing can be digitalized,” says the Federal Ministry of Labor and Social Affairs. In the meantime, this has also changed Welfare state debate further developed outside the government commission.
A few years ago the debate about the welfare state looked different than it does today. After then-Chancellor Gerhard Schröder (SPD) had the meager Hartz IV social benefit invented in 2002, celebrities demanded the opposite: an unconditional basic income. The supporters included the now deceased drugstore entrepreneur Götz Werner and Thuringia’s then CDU Prime Minister Dieter Althaus. The state should finance the subsistence minimum for all citizens without them having to provide anything in return.
Some social reformers are no longer calling for an unconditional basic income, but rather something that could be described as a conditional basic income
Many other countries were having similar debates. In 2017, for example, there was an official pilot test with 2,000 participants in Finland. In this country, the German Institute for Economic Research (DIW) in Berlin organized, among others scientific pilot project with over 100 peoplewho were paid basic insurance of 1,200 euros per month for three years. No actual social reform followed. This is due, among other things, to counterarguments that are difficult to dispel, such as the very high costs of a basic income for everyone.
Basic security without application
Due to the economic stagnation of the past few years, society’s willingness to be generous has decreased and calls for cuts in social security have become louder. Some social reformers are no longer calling for an unconditional basic income, but rather something that could be pointedly called a “conditional basic income”. DIW economist Stefan Bach, social scientist Michael Opielka and the former Green Bundestag member Wolfgang Strengmann-Kuhn recently published a model according to which the tax offices should transfer the basic security to everyone who is entitled to it – automatically, without an application.
Today’s social security often fails to achieve its goal, experts say, because “40 to 70 percent” of those entitled to benefits do not submit any applications at all. They feared stigmatization and the rules were too complicated. “The benefits should reach the people,” says Strengmann-Kuhn, after all it’s about reducing poverty. In addition, the current system is sometimes harmful to work motivation. Anyone who receives basic security as an unemployed person and works additionally often has no financial advantage because the state support is largely offset against their wages.
An “integrated tax transfer system” could eliminate these and other disadvantages, say the experts. Because the tax offices would then be responsible for the payment, various services could be bundled at this point – for example the current basic security, housing benefit and child allowance – provided that the calculations of the benefits are simplified and coordinated.
More incentive to work
According to the proposal, low-income earners can expect that, unlike today, they will always be able to keep a third of the additional income they earn. This type of social security would not block the motivation to work more, argue Bach, Opielka and Strengmann-Kuhn.
It all boils down to one thing Negative income tax concept – also an argument for concentrating the calculation at the tax offices. The logic is this: Anyone who earns little or nothing receives benefits that cover the subsistence level plus flat-rate housing costs. If there is more income from work, the social benefit falls. Once the salary reaches a certain level, the tax office no longer pays employees; instead, they pay income tax.
However, as with the unconditional basic income, one can also argue against this model based on the possible costs. If many people who do not apply today received the money automatically, it is reasonable to assume that social security would be billions of euros more expensive than it is currently. How strong this effect is depends on the specific design of the mechanism.
A realistic suggestion?
Nevertheless, the initiative does not seem completely utopian. Key aspects receive the approval of other experts. Andreas Peichl from the Ifo Institute for Economic Research in Munich, for example, analyzes the advantages of integrating child allowances and housing benefits into basic security. Among other things, he wants to increase the incentive to work by allowing low-income earners to keep more of the income they earn themselves.
The Economic Advisory Council has already commented in this direction in its annual report for 2023. The “bundling of transfer payments and a lower transfer withdrawal rate” – less offsetting against wages – “can strengthen incentives to work and thereby reduce the risk of poverty without putting a strain on public budgets,” wrote the economists.
According to media reports, the Federal Government’s Welfare State Commission also discussed and had parts of Bach, Opielka and Strengmann-Kuhn’s concept calculated. Apparently it was also about negative income tax and automated payouts. However, given the current political climate, it remains to be seen which of these ideas will actually find their way into the Commission’s final proposals and be implemented.