Rising social security contributions weigh on competitiveness

However, rising social security contributions are becoming an additional burden that can thwart incentives to invest. In the medium to long term, rising contributions threaten to reduce economic growth by half per cent compared to a constant contribution burden. This is because higher labour costs primarily affect the competitiveness of the German economy, while higher employee contributions lead to a decline in private consumption and domestic demand. To slow down the impending rise in contribution rates, in the federal election campaign some parties are proposing to raise the threshold for income subject to contributions in mandatory social security schemes. It is true that the expected additional income could be used to avoid increases in contribution rates in the short term. However, a supposedly fairer distribution of the burden cannot hide the fact that the overall contribution burden for employees and employers is increasing. Moreover, the ageing of the population will lead to further increases in contribution rates in the medium and long term, even with an increased income threshold. Instead, it is necessary to limit the increase in expenditure both in statutory old age insurance and in health and long-term care insurance to stabilise contribution rates under the rules of the current contribution law.