Zero increase in citizen’s income: The formula with the reverse gear

According to Labor Minister Hubertus Heil, there will be no increase in the citizen's allowance in 2025. He is citing an adjustment formula with pitfalls.

Here you can get the citizen’s allowance: Jobcenter in Hagen Photo: Funke Photo Services/imago

There will be no increase in the citizen's allowance in 2025. This was announced by Labor Minister Hubertus Heil (SPD) on Wednesday in the “Frühstart” program on RTL and ntv. If inflation is high, the standard rates would also have to be adjusted accordingly. But now the inflation rate has fallen sharply. The legal mechanism is therefore such that there will be no increase in the citizen's allowance at the beginning of 2025. The German Social Association (SoVD) protested against this.

The background to Heil's decision is the adjustment formula for the annual increase in the citizen's allowance. taz editor Barbara Dribbusch explained what this is all about in this text in June, which we are therefore republishing here.

Berlin taz | No zero increase in the citizen's allowance in 2025! This is what a coalition of eight welfare and social associations, trade unions and unemployment groups is now demanding. The initiators, including the DGB, the Paritätische Gesamtverband, the Diakonie, VdK and the SoVD, appealed to Federal Minister of Labor Hubertus Heil (SPD) to please change the adjustment formula for the increase in the citizen's allowance. “There must not be a zero increase,” said Joachim Rock, the Paritätische's future general manager.

Zero increase in the citizen's allowance in 2025? It's hard to believe, as the citizen's allowance rose by twelve percent at the beginning of 2024, and the standard rate increased by 61 euros to 563 euros. The adjustment formula for the annual increase in the citizen's allowance took inflation into greater account.

The CDU/CSU and FDP immediately invoked the “wage gap requirement” – the citizen's allowance should not be too high. And now this: the next increase from 2025 will be “very, very low”, Heil had already announced.

But why could there be a zero increase when prices are continuing to rise, albeit not as drastically as in previous years? The zero increase is due to a special feature of the annual update formula. This has been in effect since the introduction of the citizen's allowance in 2023.

Two parts of the update formula

This formula consists of two parts, the so-called basic extension and the so-called “supplementary extension”. There is a kind of built-in reverse gear that you only notice at second glance. You have to like math to do the calculation.

The basic update is based on a mixed index. This is made up of 70 percent of the development of prices and 30 percent of the development of net wages. The development is measured in two time periods and these two time periods are then compared to determine the percentage increase due to the basic update.

For the increase in the standard requirement as of January 1, 2024, for example, the periods from July 2021 to June 2022 were compared with the periods from July 2022 to June 2023. This basic update resulted in an increase of nine percent.

In a second step, this increase was then supplemented by a supplementary update that took the more recent price development into account. For the increase in 2024, the prices relevant to standard needs in the second quarter of 2023 were compared with the corresponding three-month period in 2022. This also resulted in a percentage, which was a good nine percent.

The special feature of the formula is that these two increases were not simply added to the previous standard rate, which was 502 euros in 2023, so the increase would have been even higher in 2024 if they had been simply added together. No, the percentage increases are only added to the amount that would result if only a basic update had been made for 2023.

According to the basic update, the calculated amount for 2023 was only 469 euros, the Federal Ministry of Labor said in a statement in response to a request from taz. This euro amount was then initially updated with the basic update of 9.07 percent and the result, around 512 euros, was then increased again with the supplementary update of 9.9 percent. This resulted in 563 euros for 2024, which meant a calculated increase of twelve percent compared to the standard rate in 2023.

“No fictitious calculation values”

What does this mean for the year 2025? It means that when the standard rate is calculated in advance for January 1, 2025, the two levels of percentage increases (through basic and supplementary updates) are not added to the current standard rate of EUR 563. They are simply added to a fictitious value that results from the basic update of the previous year. This was the intermediate value of EUR 512 mentioned.

With a basic rate of 4.66 percent and a supplementary rate of three percent – which is realistic given the lower inflation rates – the end result would only be a new standard rate of 552 euros for 2025, the associations calculate in the position paper. This would be a reduction that is not permitted by law. The end result would therefore be a zero rate in 2025.

In the position paper, the initiators call for, among other things, a “short-term reform of the update rule”. The starting point for the update for 2025 must be the current standard requirement and “not a fictitious calculation value”. In return, the so-called “supplementary update” could be dispensed with until a fundamental reform is carried out, the paper states. However, this supplementary update was introduced again specifically in order to take price increases into account more promptly. The built-in “reverse gear” was not so obvious at first glance.

The chances of another change are slim. “The standard benefit levels will be updated as of January 1, 2025, in accordance with legal requirements, based on valid and verifiable data from the Federal Statistical Office. Within the framework of the update regulation, there is therefore no scope for decision-making regarding the resulting contributions,” the Federal Ministry of Labor said in response to a request from taz.