In their coalition agreement of March 14th 2018, the parties of the newly established German government announced to establish fixed thresholds for the replacement rate and the contribution rate of the German Public Pension System (“double threshold”). Specifically, the net standard pension level before taxes will be legislated not to fall below 48% while at the same time the contribution rate must not exceed 20%. These thresholds shall apply at least until 2025. Since the number of pension recipients will strongly increase and the number of contributor decreases in the near future, a funding gap will emerge. The coalition agreement states that this gap shall be filled by taxes.
In this project we want to quantifies the financial gap and expresses it in terms of value added tax points. The gap will remain relatively low until 2025 but will rise dramatically afterwards. In the following five years only, the value added tax would have to be increased by 3 percentage points over and above the already expected rising federal subsidy. In the long run an even higher increase between 6 and 7 percentage points would be necessary to finance the emerging gap.
The results of this project were published and