Gangs commit massive fraud with record citizen's income: The government faces a tough challenge

Abuse, billions in costs, and hardly any success in mediating the issue – the citizen's income is being pilloried. What the "trafficking" coalition once celebrated as social modernization is now being radically reworked under Chancellor Friedrich Merz (CDU). The new CDU-SPD coalition doesn't want to reform the system, but rather restructure, tighten, and rein it in.

A power struggle has long been raging behind the scenes. After the communications debacle surrounding the electricity tax (private households are currently left empty-handed), the CDU/CSU doesn't want to see a second prestige project fail. The tone is accordingly sharp. CDU General Secretary Carsten Linnemann has already announced on Welt TV a comprehensive welfare reform for the fall. The new principle: Those who refuse to work are not in need.

Chancellor Merz himself has also drawn clear lines: He spoke of "perverse incentives," called for tougher measures against benefit fraud, and wants to upgrade job centers into regulatory authorities. The coalition's goal is unmistakable: streamline the welfare state, eliminate perverse incentives, and save billions.

At the heart of the reform is Federal Labor Minister and SPD leader Bärbel Bas . She must shoulder the project – and master the balancing act between social security and fiscal discipline. A two-stage model is planned: A first package of measures is to be introduced as early as this fall – including tougher sanctions for those who refuse to work. This could be implemented without the approval of the Bundesrat. The second phase, on issues such as housing costs, will follow in 2026 and can only be decided upon jointly with the states.

Expectations are high, and the pressure immense. Coalition circles are saying: If the reform fails, the next social rift threatens – like the migration debate. Because the citizen's income has long since evolved from a purely administrative issue into a political projection screen.

What sounds like order and fiscal common sense on paper turns out to be a balancing act bordering on unconstitutionality in reality. The thorny questions are on the table: How far can the state cut? Who is considered needy? And what does social justice mean in times of empty coffers?

Pressure for reform due to cost explosion and system failure

The results of the reforms' predecessors are sobering. Since its introduction in 2023, the citizen's allowance has been seen as a symbol of well-intentioned but poorly implemented social policy. The bare figures speak for themselves: In 2024 alone, citizen's allowance expenditures rose to over €40.7 billion, and more than €43 billion is expected in 2025 – a record figure. At the same time, the system has proven ineffective. The "Job Turbo" announced by SPD Minister Hubertus Heil in 2023 remained a pipe dream: The promised 400,000 job placements never materialized. Job centers report stagnation instead of improvement.

Citizens' income fraud: Gangs plunder social security funds

Even more explosive is the massive number of fraud cases: There were 421 cases of gang-related fraud in 2024 – almost twice as many as in the previous year, new figures now show. The tricks are becoming increasingly sophisticated: bogus rental agreements, fake identities, and multiple applications. By May 2025, 195 more suspected cases had been reported. The loss of trust is enormous – and is driving the government to take action.

The managing director of the Berlin-Spandau Job Center opened up in the Berliner Zeitung. Winfried Leitke observes an alarming professionalization of the methods. He told the Berliner Zeitung: "Unfortunately, the fraudulent structures demonstrate a high degree of professionalization – for example, through fake social security registrations, rental and employment contracts, and translation services that accompany people to appointments at the Job Center."

Those affected, however, often live in inhumane conditions, are exploited, and simultaneously act as front men for a lucrative fraud scheme. Often, the alleged employer is also the landlord, interpreter, and contact person – a opaque system. "Many of these people are themselves victims of the structures," says Leitke. He adds: "The people behind the scheme profit in multiple ways – through rent, brokered jobs, and ultimately the fraudulently obtained social benefits." The authorities, however, are usually powerless, partly because there is no data exchange.

The transformation: From citizen's income to basic security

What is now to follow is a record-breaking reversal of the citizen's allowance. The coalition of the CDU, CSU, and SPD is planning the most drastic reform since its introduction. The plan is for anyone who skips job center appointments or refuses jobs to immediately expect a 30 percent reduction in benefits. If the offense is repeated, the entire benefit will be withdrawn, excluding rent and heating costs. These sanctions are already possible today – they have just practically never been implemented. Since March 2024, the law has permitted a total reduction, but not a single case has been documented so far. Now this is to be changed – with pressure from above.

Fewer protected assets, shorter waiting periods : Instead of one year, aid recipients will now only have six months before their own assets are affected. Protected assets will also be reduced – depending on age and employment history. The flat-rate regulations will be abolished. Inflation adjustment will also be eliminated. The automatic adjustment of standard rates to price developments will be abolished. In the future, policymakers will again make decisions based on the budget situation – a clear austerity strategy.

47 percent of citizen’s allowance recipients are foreigners

The greatest political explosiveness, however, lies not in the sanction mechanisms, but in one numerical figure: 47 percent of citizens' allowance recipients are foreigners. The causes are complex— migration , language barriers, unrecognized qualifications—but the public debate increasingly conveys the impression that migration is a major driver of social spending. The term "welfare tourism" is back in the discourse—not only on the far right, but also in the middle class. The new harshness in the system is thus being sold not only as an economic necessity—but also as a signal regarding migration policy.

The current regulation is clear: Foreign nationals are generally only entitled to citizen's allowance if they meet the same requirements as German citizens. They must be at least 15 years old, have their habitual residence in Germany, be in need of assistance, and be unable to support themselves from their own income or assets. A key requirement is also a legal residence permit that explicitly entitles them to work. Those who have entered the country solely on a job-seeking visa are generally not entitled to citizen's allowance.

One thing is already certain: Ukrainians will no longer receive citizen's allowance in the future – and this will be retroactive to April 1, 2025. Instead, they will be subject to the significantly lower Asylum Seekers' Benefits Act. However, how exactly this system change will work remains completely unclear. The retroactive implementation, in particular, raises legal and administrative questions. Who will pay back the benefits? How will the changeover be implemented? Currently, there is more confusion than clarity in the authorities.

These are the concerns: Constitutionally highly risky

The reform plans are treading on legally thin ice. In 2019, the Federal Constitutional Court ruled that cuts of more than 30 percent of the minimum subsistence level violate fundamental rights – except in cases of the most serious breaches of duty. Whether the planned complete benefit freeze will stand in the event of a repeat offense is questionable. Articles 1 and 20 of the Basic Law guarantee a humane basic social security system – even for those who refuse to receive social security benefits.

In addition, job centers are already overwhelmed. New sanction mechanisms, faster procedures, and individual assessments require staff, digitalization, and clear standards – all of which are lacking. Many sanctions are already ineffective because they are not enforced. The announced restructuring could drive the system to collapse – both administratively and morally.