Proposal to stop migrants drawing benefits for five years goes beyond moratorium proposed by David Cameron in UK

The German government has approved a draft bill intended to dramatically reduce European Union citizens’ access to the country’s social welfare system.

Under the proposed law, EU citizens would be forbidden from drawing benefits for their first five years in Germany.

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The labour minister, Andrea Nahles, a Social Democrat member of Angela Merkel’s coalition government, has been working on the draft bill for months, following a ruling by the federal court that EU citizens had a right to benefits after living in Germany for just six months.

Nahles argued the ruling would only encourage “social welfare tourism” and said municipalities who were responsible for paying unemployment benefits were unfairly burdened by the estimated €800m (£720m) a year spent on the 130,000 EU citizens currently registered as jobseekers.

Her proposal goes considerably beyond the four-year moratorium controversially argued for by the former British prime minister David Cameron before the UK’s EU referendum.

The law would not exclude EU citizens currently in employment from entitlement to welfare payments, or those who have rights to payments because they have worked.

Nahles said: “What’s clear is that those who live, work and pay their contributions have a legal right to benefits from our social welfare system. But for those who have never worked here and are dependent on state financial support in order to afford the basic costs of living, the principle applies that they can apply for those means in their own country.”

Nahles said the change to the law would close a loophole and would help ensure “strengthened trust in the freedom of movement of workers”, one of the central tenets of the EU. Concern about the abuse of freedom of movement was one of the key arguments of those in favour of Brexit as to why Britain should leave the union.

Nahles said protecting German municipalities from “financial overload” was also crucial to the decision.

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Emilia Müller, social minister of the Christian Social Union, the Bavarian partner to Merkel’s Christian Democrats, welcomed the proposed legislation. “It’s the right thing … to close the loophole opened up by the federal court’s ruling, which would have led to unbridled access to our social welfare system,” she said.

Criticism of the law came from, among others, the Greens and the leftwing Linke party, whose leader Katja Kipping has argued it called into question “in which direction the EU is going to develop”. She said the German government should put its energies instead into ensuring an EU-wide guaranteed minimum income.

Annelie Buntenbach, of the confederation of trade unions, argued it was anti-constitutional, because “those living in Germany … have a right to the security of a humane existence”, which she said should not be determined by their nationality.

In June 450,000 people from the 27 other EU member countries were receiving social welfare benefits in Germany – a total of 12% of all EU foreigners in the country. Around 135,000 were from Bulgaria and Romania, but of those 42% had jobs yet were reliant on the welfare payments to bring their incomes up to an adequate level.

The bill now goes to the Bundestag, where it is widely believed that it will gain enough approval to pass into law.