It is calculated in these 5 steps

The monthly payments of the citizen's allowance are to remain unchanged next year. The amount of this social benefit has been controversial for months. But how exactly is the citizen's allowance calculated? Here is a detailed explanation in five steps.

Step 1: Collecting consumption data

Every five years, the most comprehensive statistical household survey in Europe takes place in Germany: the Income and Consumption Survey (EVS). Around 80,000 households are questioned about their expenses. Many of these households keep a detailed household book over a period of three months in which they precisely document all expenses.

This extensive data collection enables the government to get an accurate picture of what lower-income households spend their money on.

In particular, the consumption habits of households with income that do not receive citizen's allowance are analyzed. These households form the so-called reference group, which represents the bottom 15 to 20 percent of the income pyramid.

The basic idea is that what these people spend on their living expenses should also be available to a citizen’s allowance recipient.

The data from the EVS therefore serve as the basis for calculating the citizen's allowance. Since the collection and evaluation of this data is time-consuming, the results are only available more than a year after the data collection.

Step 2: Definition of standard requirements

The citizen's allowance is intended to ensure a “dignified minimum standard of living” without guaranteeing a great deal of financial flexibility. Therefore, the amount does not exactly correspond to the average expenditure of the reference households.

Certain items of expenditure are deliberately excluded. These include expenses for alcohol, tobacco, gambling, pets, package holidays, car journeys, as well as cut flowers and houseplants.

The Federal Ministry of Labour and Social Affairs therefore checks the EVS data and adjusts it to remove items that do not count towards the subsistence level. The result of this adjustment process is the standard requirement. This represents the amount that is considered necessary to lead a life in dignity.

Step 3: The Standard Needs Determination Act

In the Standard Needs Determination Act, the Bundestag specifies exactly which expenses are part of the standard needs. The items included in the citizen's allowance are listed in detail in twelve categories. For a single-person household, this results in around 80 individual items. Some examples are:

• Food: 134.90 euros per month
• Shoes: 2.42 euros
• Alterations to shoes: 0.28 euros
• Entrance fees for cultural events: 4.87 euros
• Drinks: 12.90 euros

What is particularly noteworthy is that by excluding alcohol from the EVS database, an additional amount is taken into account for non-alcoholic beverages. For example, 3.13 euros per month is allocated for mineral water.

This detailed breakdown results in the standard requirement, which was 434.96 euros for a single-person household when last determined in 2020. The law is based on the EVS data from 2018.

Citizens' allowance recipients can decide for themselves how to use the individual amounts. If they save in one place, they can use the money for other needs that are not explicitly included in the standard needs.

Step 4: The base update to adjust for inflation

Since the EVS is only carried out every five years and the cost of living can change in the meantime, there is a basic update. This serves to adjust the standard requirement to the current price development, especially to inflation.

For this purpose, a special inflation rate is calculated that relates exclusively to the goods and services included in the standard needs. This is necessary because the general inflation rate also takes into account price developments that are irrelevant for citizens' allowance recipients, such as rising rents or fuel prices.

The basic update is calculated 70 percent based on the price development of goods relevant to standard needs and 30 percent based on the average wage and salary development.

This mix is ​​intended to ensure that both price increases and general income developments are taken into account when adjusting the citizen's allowance.

A practical example: The data from July 2022 to June 2023 were used to adjust the citizen's allowance at the beginning of 2024. If prices continue to rise after this period, the adjustment may lag behind the actual price development.

Step 5: The supplementary update to compensate for delays

To alleviate the problem of the delay in taking inflation into account, there is the supplementary update. It is intended to include the inflation of the current year more strongly in the calculation. The inflation data for the months April to June of the current year are taken into account.

The supplementary update is an attempt to reduce the delay between the actual price development and the adjustment of the citizen's allowance. The calculation for 2023, for example, resulted in a basic update of 4.54 percent and a supplementary update of 6.9 percent.

This resulted in an increase in the citizen's allowance to 502 euros as of January 1, 2023. The adjustment for 2024 was similar, with the citizen's allowance being increased to 563 euros.

Critical discussion about the calculation method

Despite the well thought-out calculation process, the amount of the citizen's allowance is being criticized. Social associations such as the Paritätische Wohlfahrtsverband argue that the current amount is not enough to ensure a minimum subsistence level. They are calling for an increase to at least 813 euros per month, mainly due to the sharp rise in food prices.

Social scientists point to the phenomenon of “hidden poverty”. These are people who do not apply for social benefits despite being entitled to them, often out of shame or ignorance. These very low-income households lower the average of the reference group, which leads to a lower standard of living.

Another problem is that the rent costs are not always fully covered. If the rent is deemed to be unreasonably high, citizens' allowance recipients must pay the difference from the standard amount, which puts an additional strain on their financial situation.

On the other hand, there are political voices who consider the citizen's allowance to be too high. Some parties criticize the supplementary update and call for a review or even a reduction in benefits. They argue that inflation was overestimated and that the citizen's allowance has therefore increased disproportionately.