The European Semester and Germany

There are few surprises in the country-specific recommendations for Germany, although this time the focus is again on old-age pensions. The recommendations include:

• Shifting taxes away from labour;
  
• Reducing disincentives to working longer hours, including the high tax wedge for low-wage and second earners;
  
• Taking measures to ensure the long-term sustainability of the pension system while maintaining its adequacy;
  
• Promoting higher wage growth.
  

Social security contributions particularly high

The recommendations criticise the fact that social security contributions of employees account for about two thirds of taxation of earnings from labour and are therefore particularly high by international standards. In contrast, environmental tax revenue in relation to GDP is among the lowest in the EU. Finally, the warning to place a greater emphasis on affordable housing is particularly striking as Germany is lagging behind the rest of Europe in this area.

Real wage growth remains modest and the percentage of low-income earners (22.5% in 2017) is still considerably above the EU average.

At the Council meeting on 13 June, State Secretary Schmachtenberg explained that although Germany has achieved good results in its employment rate, it has fallen short of its own targets in the fight against poverty. This issue is reflected in the recommendations because the risk of poverty among children of low-skilled parents in Germany is 67 percentage points, which is well above the EU average.

The recommendation can be found here.