German institute suggests giving 20 thousand euros to young people to reduce inequality

In December 2021, while the world’s attention was focused on the omicron, the new variant of the coronavirus, the German Institute for Economic Research (DIW) revived a centuries-old idea to help tackle economic inequality.

As a universal basic inheritance, or “Grunderbe” in German, 20 thousand euros (about R$ 126 thousand) would be allocated to each resident when he turns 18 years old. The money would be used for professional training, the purchase of a house or the financing of a business, but it could not be wasted.

The idea is similar to the Universal Basic Income, a social replacement scheme being tested in other countries, which grants people a minimum monthly income without prior verification of financial status.

“If we really want to create prosperity for all in the foreseeable future, then we must reduce the high level of economic inequality through redistribution, giving a basic inheritance to the half of the population that has no assets,” the German expert wrote in his proposal for the think tank. in taxes Stefan Bach.

Bach said that if the money were given to the roughly 750,000 young people residing in Germany who turn 18 each year, universal inheritance would cost the German government about 22.6 billion euros annually. It could be financed by raising the inheritance tax, introducing an ultra-rich tax and reforming property taxes.

Ten percent own 67% of the wealth

According to the consultancy, wealth in Germany is heavily concentrated compared to other countries with similar income distribution. The richest 10% own two-thirds of total private wealth (about 12 trillion euros in assets, equivalent to R$75 trillion); about 30% of private wealth is concentrated in the hands of the richest 1%, while the richest 0.1% own up to 20%.

The bottom half of the table has few or no assets — just 1.3% of total private wealth, and almost nothing is left when family members die, according to a study by the Forum New Economy. Berlin).

Bach said simulations showed that a universal inheritance scheme would reduce the Gini coefficient — a statistic used to assess the distribution of wealth or the degree of concentration of income in a given group — by 5 to 7%. Inheritance could increase the wealth of the poorest half by between 59% and 94%.

If German Chancellor Olaf Scholz’s new government really wanted to address inequality, Bach said, it should “focus on increasing middle-class wealth, supporting home ownership, provision of supplementary pensions and financial assets.” “.

“For low-income groups, supplementary pension and financial assets are particularly relevant,” he added. In their coalition agreement, the governing parties talked about measures to support wealth creation, including promoting home ownership, private pensions and income tax rebates.

Other countries are under pressure to adopt similar proposals. In the United Kingdom, the Campaign for Universal Inheritance demanded the granting of a “decent minimum amount of capital” to those reaching the age of 25, “whatever their parents’ fortunes, misfortunes, generosity or lack of generosity”.

British Prime Minister Boris Johnson was elected in 2019 and won the Brexit referendum on a pledge to reduce economic inequality between the prosperous south east of England, which includes London, and the rest of the country.

“There’s a lot of talk of ‘leveling up’ by the Conservative government, but there’s hardly any talk of universal inheritance, which is obviously a clear way to level the playing field for most people,” said Dane Clouston, director of the Campaign for Universal Heritage. , to DW.

parents money

On its website, the British campaign says that “equal opportunity and the distribution of inherited wealth are inextricably linked”. “Those who benefit from the pretense that equality of opportunity has nothing to do with the distribution of inherited wealth…are the heirs of the next generation of families who own most of the corporate, agricultural and equity wealth – vast amounts of which were and are received by them completely tax-free as a result of a series of scandalous exemptions,” the website adds.

Whenever politicians in Europe and the US have threatened to introduce new wealth taxes, the rich have often threatened to move to countries with lower taxes.

“Inheritance tax, in particular, is unpopular — although very few are affected,” Bach said. “If tax increases were used for a basic inheritance, they would certainly be easier to pass on to the rich.”

demographic issue

Much of Germany’s inequality can be explained by an aging population, as older people have had more time to accumulate wealth than younger generations.

Although the amount of savings is high, most people keep their savings in low-interest accounts, so their wealth is eroded by inflation over time. The low property ownership rate — just 45%, according to the German central bank, compared with around two-thirds in France and the UK — also prevents many people from accumulating wealth in real estate.

On the other hand, inheritance and property taxes would need major reforms as they currently undervalue property and commercial assets owned by the wealthy, says Bach, adding that wealth taxes account for just 1.1% of all tax revenue in Germany.

British-born American political activist Thomas Paine first suggested a kind of universal inheritance as early as 1797. Under his plan, every man and woman would then receive £15 (£1,339 in today’s value) upon reaching the age of 21. years, paid by raising property taxes on the rich.

Almost 200 years later, the idea was taken up by British economist Sir Anthony B. Atkinson, known for his work on measuring inequality. In 2015, Atkinson published his latest book Inequality: What Can Be Done? (Inequality: What Can Be Done?), which also proposed using taxes on assets passed on to succeeding generations to pay a form of initial inheritance to those who come of age.