Germany will not go back to the future
In tough economic times, the SPD leadership appears wise to the dangers of reversing reforms on taxation and pensions
With just days to go until the SPD’s biennial national party conference in Berlin, two questions are vexing political observers. Which of the three possible social democratic candidates for chancellorship in 2013 will be able to thrill delegates – former finance minister Peer Steinbrück, fraction chairman Frank-Walter Steinmeier, or party leader Sigmar Gabriel? And how far will social democrats abandon the economic and social reforms they implemented in government between 1998 and 2009?
Last year the SPD agreed upon extending the entitlement period for unemployment benefits and postponing the enactment of pension age to 67 – thus slightly dialing back major social democratic reforms. Now, at the congress, two further crucial issues will be put to vote. First, more and more party functionaries support a proposal to raise the top tax rate for the wealthy to 52%. This plan counters a comprehensive financial package suggestedby the party leadership, including a top tax rate of 49%. The current rate is 42% – lowered from 53% in the course of a comprehensive tax reform under the red-green coalition in 2000.
Second, some party working groups are moving to cement future pension entitlements at current levels in order to prevent, they argue, old-age poverty. Current law, written by an SPD-minister for work and social affairsin order to accommodate for demographic changes, provides for lowering entitlements from present levels of 50%to 43% of average earnings in 2030.
One party official has offered me the view that delegates, if pushed for a spontaneous decision, would largely endorse both of these retro-proposals. On the one hand, this is hardly surprising considering the vociferous criticism leveled by trade unions, welfare organisations, and people on the street at the SPD’s ‘Agenda 2010’ reforms. The party is still in a process of coming to terms with the past.
On the other hand, it will be essential for the SPD to let reason prevail over sentiment, as both proposals are divisive and lead in the wrong direction. Responding to the debate on taxes, the SPD leader, Sigmar Gabriel, choose the right words: “You cannot win elections trying to outdo your competitors in terms of raising taxes,” he said, warning his party that exceeding the magic number of 50% as maximum tax rate would frighten off middle class voters.
In terms of pensions, arguments against a rollback are threefold. Once in government, the hands of social democratic politicians will be tied due to financial restrictions – the SPD simply could not deliver. Even today, almost a third of the federal tax yield in Germany is transferred into the state pension scheme as a subsidy. Moreover, codifying the pension level would be wrong from a tactical point of view, given the fact that citizens are well aware of the limited budget options. Last but not least, turning back pension reform would be flawed in terms of policy direction, overlooking the disfunctionality of the welfare state with regard to new social risks and needs, and instead focusing on the betterment of those with jobs subject to social insurance.
Paradoxically, this kind of measure would not strengthen, but rather weaken the acceptance of the welfare system. It is not by chance that a growing number of freelancers, low earners, and young people consider the welfare state as a mere “security net for old people” (Alfred Gusenbauer) from which they expect little help. At the same time, this discussion also reveals that the model of a social investment state – a welfare state with an emphasis on investing in human resources as a prerequisite for social inclusion, growth and employment – no longer constitutes a vital pillar in social democratic thinking anymore. Instead, factions of the SPD are putting too much effort into strengthening the ‘conservative’ welfare state model of the Bismarckian tradition.
Next week’s decisions will also have an impact on the social democratic candidacy for chancellor. As things stand, Peer Steinbrück and Frank-Walter Steinmeier seem to have the best chance of getting the post. Both are pragmatists who embody the term economic competence. It is hard to imagine any of the ‘stones’, as they are dubbed, running an election campaign with a programme consisting of large tax increases, longer employment benefits, and higher pension levels while the euro-zone is wasting away from the debt crisis. The next problem of social democratic credibility would be just around the corner.
Der Text erschien zunächst als Teil einer monatlichen Kolumne bei unserem Kooperationspartner Policy Network.