GERMAN EMPLOYERS CRITICAL OF FRONT-RUNNERPosted On: Sep. 20, 1998 12:00 AM CST
COLOGNE, Germany -- On the eve of German national elections, employers are harshly criticizing the Social Democratic Party and its charismatic leader, Gerhard Schroeder.
Mr. Schroeder, who is seeking to reverse employer-friendly tax and social insurance reforms, is leading Chancellor Helmut Kohl in pre-election polls.
Mr. Schroeder has pledged that he will unravel social security legislation passed in October in his first 100 days in office. The so-called "Rentenreform" is expected to slash German retirement benefits by 6%, beginning in 1999. If the SPD has its way and the reduction is repealed, employers expect total retirement contributions -- which they share with employees -- to account for 25% of wages by the year 2030. Currently, employer contributions account for 20.3% of wages. Additional costs to employers if the reforms are reversed are estimated at 15 billion deutsche marks ($8.87 billion) by 2030.
German Employer Assn. President Dieter Hundt called the SPD agenda a "100-day program to destroy economic recovery." Mr. Hundt blasted the party's position, saying it jeopardized talks among government, employers and unions aimed at creating jobs. The SPD's stance "only boosts personnel costs, dampens investment and kills jobs," he said.
The SPD aims to stabilize Germany's pay-as-you-go social insurance system, which is on the brink of collapse due to longer life expectancies, lower birth rates and high unemployment. SPD initiatives include bringing into the system more contributors, such as civil servants and the self-employed, and setting up a federal support fund financed through government, employer and pensioner contributions. SPD argues that such groups benefit from the system and thus should pay into the fund.
Mr. Hundt criticized efforts to rescue Germany's national pension system, which he deemed "antiquated," and he voiced support for slowly cutting benefits under the program and introducing alternatives, including capital-based private and company pension plans, which might be less susceptible to demographic changes.
Employers also directed criticism at the SPD for proposals to scale back health care cost cutting, employment protection and job market reform. In his agenda, the SPD's Mr. Schroeder has pledged to "re-examine" health care reform measures introduced last year by the ruling conservative coalition of the Christian Democratic Union and the Free Democratic Party. As part of 1997 health care reforms, the Kohl government boosted patient cost-sharing and cut benefits for certain treatments such as spas and denture work.
Opting for major change, the SPD plans global budgets for doctors, hospitals and medicines and to introduce managed care elements, including competitive bidding for services, into the German health care system. In addition, the SPD plans to restrict the list of medications that doctors associated with health plans can prescribe for patients; in effect, forcing the use of less expensive generic drugs.
While he supports "any plan to reduce costs," Alexander Gunkel, the social insurance section director of the Assn. of German Industry, questions the effectiveness of creating the budgets, fearing they will not contain health care costs but will force increases in employer contributions. "Global budgets mean more government, but it's questionable they can keep costs down," he said.
In 1992, Germany introduced budgets for health plans but found their positive effects short-lived. "Doctors just stopped certain treatments when the money ran out and did others. The patient suffered, and cost containment was a joke. If it didn't work then, why should it now?" Mr. Gunkel said.
Another factor expected to affect employer costs is an SPD plan to repeal a reform of an employee protection law. In 1996, the Kohl government changed the conditions under which employers could lay off employees. Under the reform, only companies with 10 or more employees were required to pay termination bonuses when employees were laid off. Prior to 1996 -- and in tune with SPD future plans -- employers with five or fewer employees had to pay the bonuses.
The good news for employers is that all parties have pledged to support industry efforts to create jobs. That pledge includes the SPD, which favors lower corporate income taxes and reduced local taxes by local authorities on earnings and capital. Most importantly, the SPD supports a reduction of the additional wage costs that make German employees some of the highest paid workers in the world.
"German taxes and social insurance contributions are much too high," said Mr. Gunkel. "From our standpoint, we need less government and tax reform that provides companies with a real net increase in income.'