Farandou is "not against" social VAT, but warns against "merchants of illusion".

Jean-Pierre Farandou opened the door to a change in the financing of social protection, while urging caution against overestimating the effects of the social VAT. Speaking on Thursday during a debate organized as part of the French Business Leaders' Meeting of the Movement of French Enterprises (Medef), the Minister of Labor emphasized the need to offset any reduction in contributions.

Reduce contributions to increase net wages

The minister first highlighted the effect that a reduction in contributions could have on the remuneration received by employees.

"Are we capable of lowering contributions? Because if we succeed, it's fantastic, mechanically, net pay will increase and we know that we have a problem with purchasing power in this country," said Jean-Pierre Farandou.

A reduction in contributions would, however, lead to a decrease in revenue for social protection. This would therefore need to be offset by another source of funding, the minister reminded everyone.

"The money that the contributions represent, we have to find something to replace it. (...) VAT is an idea, the Medef has also taken it up in its proposals, I am not against it, (but) it is not enough," he continued.

An effect deemed too limited on purchasing power

Jean-Pierre Farandou raised the possibility of a transfer between value-added tax (VAT) and the generalized social contribution (CSG). According to him, such a move could improve net pay, but its concrete effect would remain limited.

"One point more in VAT equals one point less in CSG, roughly, so if you raise VAT by two points, you can lower CSG by two points, for example, (...) you gain two points on salaries. Does that change people's lives? I'm not sure," he explained.

The minister therefore believes that a broader reform is necessary. "We need a package deal: perhaps VAT (...) but we'll need something else," he added.

Without directly challenging the employer's proposal, which he considers "solid", Jean-Pierre Farandou warned against "merchants of illusion who throw ideas around" on this subject.

The Medef proposes a 2,3 point increase in VAT.

A social VAT is among the main economic proposals put forward by the Medef (French Business Confederation). The employers' organization wants to reduce social security contributions in exchange for a 2,3 percentage point increase in the standard VAT rate, currently set at 20%.

Its president, Patrick Martin, had stated on Wednesday that this measure constituted "the most effective economic, social and budgetary solution".

The plan advocated by the Medef (French Business Confederation) aims in particular to transfer part of the financing of social protection, currently borne by earned income, to consumption. However, the debate centers on its consequences for net wages, businesses, public revenue, and household purchasing power.

Towards a reassessment of pension indexation

When also questioned about the evolution of pensions, Jean-Pierre Farandou argued for a reform to financially rebalance the retirement system.

"I think that, yes, we need to question this principle of systematic indexation which is very costly, even more so in a phase of high inflation, I think the system does not have the means to support this," he said.

The minister questioned the possibility of establishing a mechanism for periodic discussion on pension developments, comparable to wage negotiations organized in companies.

"Why don't we treat pensions like we treat wages? Why isn't there a negotiated review, a kind of mandatory annual negotiation (NAO) for pensions?" he asked.

Jean-Pierre Farandou thus stressed "the need for a powerful reform to rebalance the pension system", without detailing at this stage the modalities of a possible negotiation mechanism.