Coalition deal gets mixed reactions from social partners

In October 2009, the Christian Democratic Party and Liberal Democratic Party reached a deal to form a new government in Germany. The coalition agreement includes some tax relief for companies and families, and rules out introducing a statutory minimum wage. It also includes provisions for a partial uncoupling of employer and employee health insurance contributions. Employers welcomed the agreement, whereas trade unions criticised plans for wealth redistribution.

On 24 October 2009, the conservative Christian Democratic Party (Christlich Demokratische Union, CDU), its Bavarian associate, the Christian Social Union (Christlich-Soziale Union, CSU), and the Liberal Democratic Party (Freie Demokratische Partei, FDP) reached an agreement (in German, 628Kb PDF) to form a new coalition government in Germany. Negotiations to establish such a conservative-liberal coalition had begun shortly after the general election held on 27 September 2009 (DE0910029I).

The new coalition has established three guidelines for maintaining prosperity for all and promoting economic recovery, that is:

  • motivating both sides of industry by cutting taxes, reducing red tape and increasing the incentives to perform a job;
  • consolidating the federal budget;
  • maintaining employment levels and guaranteeing access to investment capital for companies.

Aspects of coalition agreement

Provisions in three fields are of special interest to both trade unions and employer organisations, as well as to the general public.

Taxes

The new government intends to raise the annual tax allowance per child from €6,024 to €7,008 and child benefit by €20 a month. A new draft bill on accelerating economic growth (Wachstumsbeschleunigungsgesetz) provides for both increases to take effect on 1 January 2010. In addition, the tax scale is to be reformed by the end of 2010 to counteract the effects of fiscal drag and prevent real net income losses if part or all of the growth in wages or earnings only compensates for inflation. Several forms of corporate taxation and the inheritance tax are also to be reduced and modified.

Employment prospects

The coalition explicitly acknowledges that collective bargaining autonomy is an integral part of Germany’s economic system and that collective agreements have priority over wage setting by the government. The new government therefore rules out the introduction of a statutory minimum wage. Moreover, an analysis of the impact on employment of the existing sectoral minimum wages (DE0703049I, DE0710019I) is to be completed by October 2011 in preparation for a decision on whether to renew or abolish the existing provisions.

Instead of a statutory minimum wage, legislation is to be introduced incorporating the decisions of the labour courts, which currently decide on a case-by-case basis, outlawing so-called ‘immorally low wages’. The Federal Labour Court (Bundesarbeitsgericht) has ruled that a wage that is lower than two thirds of the level stipulated by the corresponding collective agreement may be deemed ‘immorally low’, although consideration must be given to the specific circumstances.

Furthermore, the centre-right government announced its intention to abolish the general ban on re-employing workers who have previously worked for a company on a fixed-term basis without giving adequate reasons. The ban is to be replaced by a waiting period of one year.

Health insurance

The coalition agreement stipulates that, in the long run, the uniform, income-dependent funding of the statutory health insurance is to be transformed into a system which gives health insurance organisations more autonomy in fixing contribution levels. Moreover, additional contributions independent of the beneficiaries’ income level are to be made possible. As a first step, the proportion of contributions paid by employers is to be frozen at its current level, thus partially uncoupling employer and employee contributions to the health insurance system.

Reactions of the social partners

In a press release (in German) dated 24 October 2009, the Chair of the Confederation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB), Michael Sommer, criticised the coalition agreement as potentially a hidden redistribution of income from bottom to top. He also referred to the intended reform of the health system as the first step towards a two-class health system. Mr Sommer admitted, however, that collective bargaining autonomy, co-determination and employment protection had been guaranteed in the agreement, despite announcements to the contrary made by the liberals during the election campaign.

In another press statement (in German) on 24 October 2009, the President of the Confederation of German Employers Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA), Dieter Hundt, suggested that the coalition agreement points the country in the right direction for the coming years. He particularly welcomed the coalition’s plan to stabilise the level of contributions to the health insurance system. In addition, he hailed the agreement’s provisions with respect to tax reductions for both employees and companies and the refusal to implement a statutory minimum wage. However, Mr Hundt deplored the new government’s unwillingness to advance the deregulation of employment protection.

Oliver Stettes, Cologne Institute for Economic Research (IW Köln)

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