Summary:

I.

The constitutional complaint proceedings concern the transfer of funds deriving from social security contributions that the Federal Employment Agency made to the federal budget in the years 2005 and 2008.

Prior to the re-structuring of the social welfare system under the so-called Hartz IV reforms, unemployment assistance served as a social security measure that, in addition to unemployment benefits (Arbeitslosengeld), provided protection against the risk of unemployment based on the principle of the social state. Unemployment assistance constituted a measure for the promotion of employment (Arbeitsförderung) under the Third Book of the Code of Social Law (Drittes Buch Sozialgesetzbuch). Under this system, benefits supplementing the cost of living that were granted by the Federal Employment Agency were financed by funds from the federal budget; contrastingly, the former jobseekers’ assistance scheme (Eingliederungshilfe), unemployment benefits and all other expenditures of the Federal Employment Agency were primarily financed by the compulsory social security contributions of employers and employees. As a primary source of revenue for the Federal Employment Agency, these contributions are collected under the compulsory statutory pension insurance scheme, with employees and employers each liable to pay half the contribution; the payable amount is assessed on the basis of the statutory contribution rate and the income of the insured person, subject the contribution assessment ceiling (Beitragsbemessungsgrenze), which caps the assessment basis by way of an upper annual earning limit.

With the so-called Hartz IV reforms that came into effect 1 January 2005, unemployment assistance and large parts of the existing social welfare benefit scheme were consolidated into the basic support for jobseekers scheme set out in the new Second Book of the Code of Social Law (Zweites Buch Sozialgesetzbuch; hereinafter, “SGB II”). The new scheme provides both for benefits for unemployed persons supplementing the cost of living (most notably, the so-called supplementary unemployment benefit II [Arbeitslosengeld II] and social welfare benefits) as well as assistance for jobseekers. Depending on the type of measure, the different elements of the scheme are administered either by the Federal Employment Agency or the respective municipal agency. In the latter case, the costs are born by the relevant municipality, whereas the Federation covers the costs of the scheme to the extent that it is administered by the Federal Employment Agency. Prior the Hartz IV reforms, measures administered by the Federal Employment Agency under the former job seeker assistance scheme, in particular, were financed primarily by funds generated from social security contributions.

Against this background, the new statutory framework that came into effect in 2005 provided for transfer payments from the Federal Employment Agency to the federal budget during the years 2005 through 2012 to partially cover the expenditure share for the basic support for jobseekers scheme borne by the Federation.

Applicant no. 1 is an employee who was liable for social security contributions in the year 2005. Submitting, that the partial transfer of funds generated by social security contributions to the Federation was unconstitutional, he unsuccessfully applied to the competent authorities to request that his contributions for the year 2005 be re-assessed and the payable amount be reduced by a rate commensurate with the unlawfully transferred funds. Legal recourse sought by applicant no. 1 before the social courts was not met with success.

Applicant no. 2 is a legal person incorporated under private law that is liable for the employers’ share of social security contributions payable on the gross income of its employee. Applicant no. 2 claims  due to the transfer payments to the Federation, the amounts assessed for the social security contributions payable in the year 2008 were too high. The legal action brought by applicant no. 2 before the social courts was unsuccessful.

With their constitutional complaints, both applicants claim a violation of the principle of equal burdening (Article 3.1 of the Basic Law) on the grounds that the transfer payments under the new statutory system subjected persons liable for social security contributions to a special burden for the purposes of financing the general federal budget. They submit that the transferred funds were provided to the free discretion of the legislator deciding on budget matters (Haushaltsgesetzgeber), without any purpose limitation.

II.

The Federal Constitutional Court rejected the constitutional complaints as unfounded, holding that the transfer payments made by the Federal Employment Agency to the federal budget in the years 2005 and 2008 were constitutional.

The decision is based on the following considerations:

A violation of fundamental rights is not ascertainable, especially not with regard to the principle of equal burdening under Article 3.1 of the Basic Law.

Article 3.1 of the Basic provides that all persons be treated equally before the law. While differentiations may be permissible, they require justification. In this regard, any differentiation must be based on factual reasons that are appropriate to the objectives pursued and the extent of unequal treatment. As regards the imposition of non-tax levies, the general guarantee of the right to equality (Article 3.1 of the Basic Law) requires an objective reason as to why certain private actors are subject to a public levy in addition to their tax liability, whereas other private actors are only subject the tax burden. In this regard, the special burden resulting from social security contributions imposed in addition to tax liability is not objectionable under constitutional law where the contributions collected from the insured person serve to finance the insurance protection afforded the insured person concerned under the relevant scheme. To the extent that social security contributions are collected from employers, a stricter standard of justification applies given that contributions paid by the employer serve to insure a third-party risk. In this context, the liability of employers can be justified on the grounds that they have a special responsibility towards their employees, i.e. the insured persons. From these reasons justifying the liability of employees and employers for social security contributions, it follows that the public funds generated by these contributions must remain within the social security system: The collected contributions may only be used for the purposes of financing the tasks of the social security system; contrastingly, they may generally not be used to meet the general expenditure needs of the state. Yet, in the present case, § 46.2 SGB II provided, in the version applicable to the years 2005 and 2008 respectively, that social security contributions collected for the purposes of financing unemployment benefits be used to cover general expenditure needs of the Federation; in consequence, there is an unequal treatment of persons liable for these contributions in comparison to other taxpayers.

For the year 2005, this unequal treatment was justified on the grounds that the complete re-structuring of the social security system, in the course of which the former unemployment assistance scheme was abolished and replaced with the new basic support for jobseekers scheme, brought about fundamental legal, organisational and factual changes to the whole system. It would not have been possible to implement the entire reform agenda all at once. For the transitional year of 2005, it thus constituted a legitimate objective to make funds from the budget of the Federal Employment Agency, which had been largely used to cover the costs of the former unemployment assistance scheme prior to the reforms, available for the purposes of meeting the expenditure needs under the new basic support for jobseekers scheme; it was also not objectionable to achieve this by way of transferring the relevant funds from the budget of the Federal Employment Agency to the federal budget.

However, this justification does no longer hold for the year 2008. Nevertheless, the transfer payments made during this year did not violate Article 3.1 of the Basic Law either.

When looking at the net balancing of funds, it can ultimately not be concluded that the new jobseekers assistance scheme was effectively financed by social security funds provided by the Federal Employment Agency: The transfer payments from the Federal Employment Agency into the federal budget were set off by a general federal grant paid out to the Federal Employment Agency and exceeding the amount initially transferred from the Agency. The funds provided under the federal grant could be directly used to cover the costs of the jobseekers assistance scheme. In a net balancing of the exchange of funds between the Federal Employment Agency and the federal budget, it follows that the transfer of funds from the Agency did not actually adversely affect persons liable for social security contributions by way of over-charged contributions, given that the Federal Employment Agency in turn received an even larger federal grant.