The ruling was a blow against the notorious system, a type of long-term welfare assistance, which requires recipients to fulfill a specific set of conditions in order to receive a monthly payment and housing assistance.
READ ALSO: German court slaps down harshest sanctions against job seekers
In the past, the system had relied largely on slapping penalties for job seekers who did not meet all of the criteria, including when they turned down a job they did not want, or did not show up once for a job centre meeting.
The slogan of Hartz IV has long been “‘Fördern und Fordern” - or support welfare recipients, but only through making demands on them.
Judges at Germany's highest court in Karlsruhe on Tuesday. Photo: DPA
How did Hartz IV come about?
The Hartz concept was named after Peter Hartz, a former high-ranking Volkswagen manager who was instructed by then-Chancellor Gerhard Schröder of the centre-left Social Democrats (SPD) to find a solution to trim down the German social welfare state.
In 2004, Germany had some four million unemployed people, and it was becoming increasingly difficult to fund all of them under the Sozialstaat, which relied on payments proportional to their previous income.
So in 2005, then-Chancellor Gerhard Schröder introduced a series of reforms, known as Hartz I-IV.
The most well known, Hartz IV, was designed to give long-term unemployed people an “existence minimum” every month - assuming that they fulfill conditions such as filling out job applications.
While Hartz IV is reported to have trimmed the unemployment rate by 50 percent in Germany, and boosted the Bundesrepublik’s economy, it has also become a notorious name for Germany’s non-working poor.
What do politicians think?
Over the years, many politicians have called to repeal Hartz IV with a so-called bedingungsloses Grundeinkommen (Universal Basic Income),
in which everyone would receive the same amount per month regardless of whether or not they are an active part of the German labour market.
Many people who reliably cast their votes for the SPD before 2005 became disgruntled by what they saw as the party turning their backs on working class interests. In partial response to the complaints, far-left Die Linke (the Left) formed in 2007, attracting many one-time SPD voters who sought a more humane and better-paid welfare system.
In the wake of this week's ruling, Dietmar Bartsch, a leading lawmaker from Die Linke, called for a complete overhaul of the system.
"Hartz IV plunges people and their families into the abyss," he tweeted. "We need a new system of unemployment benefits that provides security and removes the fear of social decline."
But Labour Minister Hubertus Heil, a Social Democrat, earlier this year defended the Hartz IV sanctions.
"The welfare state needs to have the means to demand the reasonable and binding cooperation" of benefits recipients, he said in January.
Green Party co-leader Robert Habeck has meanwhile pushed to scrap Hartz IV and replace it with ‘system of guarantees', which would be based on incentives instead of punishment for welfare recipients.
READ ALSO: How the Greens co-leader wants to ditch Germany's controversial benefits system Hartz IV
What are the conditions of Hartz IV?
Prior to the new reforms, a person could receive an unemployment benefit (Arbeitslosgeld) between 12 and 36 months after they had lost their job, depending on their age and the amount of time they had been out of work.
But as of 2008, as part of the reform, the so-called full benefit was reduced - in most cases - to 12 months, after which the person qualified for Hartz IV. However this is extended of upwards of 15 months for those 50 and older.
At the current rate, single jobseeker with no children currently receives €424 a month, while couples receive €764.
Recipients who fail to meet monthly conditions are penalized at least 10 percent of what they are receiving.
For a second offence within one year - including not showing up to a job centre meeting - recipients can have had their benefits cut up to 60 percent. And the third time even 100 percent.
In addition, at this stage the money for housing and heating and the health insurance allowance are no longer paid. With cuts of more than 30 percent, jobseekers have still been allowed to apply for food stamps (Lebensmittelmarken).
In 2018, a total of 441,000 jobseekers were financially penalized at least once, with sanctions the highest for those under 25-years-old. These recipients have lost all payments for housing, heating and health insurance on the second violation.
How did the Constitutional Court justify its decision to end penalties of more than 30 percent?
Human dignity, as enshrined in Germany’s Basic Law (Grundgesetz), was the main reason that the judges gave for their decision.
The judges consider it unfair for the payment to be reduced by more than 30 percent, because this means too heavy a burden for those affected.
However, they said that light penalties are still permissible in order to encourage the job seeker to reintegrate into the the labour market.
How many sanctions are currently being imposed?
The number has been falling for years, as has the total number of Hartz IV recipients. According to Federal Employment Agency statistics, around 904,000 sanctions were imposed in 2018, 49,000 fewer than in the previous year.
Over the course of 2017, at least one sanction was imposed on 8.5 percent of those entitled to benefits who were also able to work. Approximately 3.2 percent of recipients were subject to one sanction per month.
The job centres cut benefits most frequently because Hartz IV recipients did not appear on a specific date. Seventy-five percent of sanctions in 2018 were due to missed appointments.
What does this mean for taxpayers?
Hartz IV currently costs taxpayers about €40 billion per year. Fewer sanctions mean higher benefits, but also that taxpayers will have to fork out millions more per year to make up for the difference.
What happens now?
The Constitutional Court did not impose a deadline on to change the sanction practice.
Instead, it has set new rules during the transition period. With immediate effect, the job centres will no longer be allowed to impose harsher penalties than the 30 percent reduction. Labour Minister Hubertus Heil (SPD) has announced that rapid reform talks will follow in the coming weeks.
What other types of reforms are being considered?
Even before the 2017 Bundestag elections, the employment and social affairs ministers across Germany had planned to abolish the special regulations for people under 25, and no longer sanction rent and heating costs in order to avoid housing losses.
In the previous Grand Coalition, Labour Minister Andrea Nahles (SPD) took up the proposals, but the CDU/CSU did not follow. Yet following the ruling, the discussions have been relaunched - including less stringent penalties for those under 25-years-old.
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