Why the child allowance should be reduced for low-income families - financial expert explains.

Why the child allowance should be reduced for low-income families - financial expert explains.

According to a report by www.rnd.de, the head of the German Institute for Economic Research (DIW), Marcel Fratzscher, has called on Federal Finance Minister Christian Lindner (FDP) not to increase the child tax allowance, but to lower it. Fratzscher argues that increasing the child tax credit would lead to a worse situation for children in low-income families and an increase in social inequality.

The child allowance currently consists of two elements: the allowance for the material subsistence minimum and the allowance for care, upbringing and training needs (BEA). While the exemption amount for the subsistence level cannot be changed arbitrarily, the amount of the BEA exemption is a political decision.

A possible increase in the allowance for the subsistence level to 6,612 euros could increase the child allowance in total to 9,540 euros, which would lead to additional costs of around 1.5 billion euros.

The discussion about reducing the BEA allowance has been going on for a long time. It is argued that, on average, parents no longer have such high expenses for care, upbringing and training needs because childcare is now well developed and mostly free.

These measures could have a profound impact on the market and the financial industry. A reduction in the child tax credit could lead to relief for low-income families while at the same time reducing social inequality. On the other hand, the additional costs of increasing the child tax credit would increase the financial burden on the state and taxpayers.

It remains to be seen how the government will respond to Fratzscher's demands and whether an agreement can be reached on the matter. The development of the child allowance is therefore being followed closely by economists and market participants. How www.rnd.de reports, the discussion about the child tax credit is far from over and it will be exciting to see what measures are ultimately taken.