"Social VAT": an "immediate resource" for economists, unfair for its detractors

On Tuesday, May 27, the Prime Minister expressed the hope that "social partners could take over" the "social VAT" to restore public finances without affecting labor costs. The measure, defended by some economists and employers, remains criticized by unions and the left, who consider it "unfair."

An Arlesian

"Value added tax (VAT) is a general tax on consumption," the Ministry of the Economy states on its website.

There are currently four VAT rates: 20% (compared to 19,6% before 2014, for "the majority of products and services"), 10% (compared to 7% previously for "catering", "non-reimbursed medicines", etc.), two reduced rates of 5,5% (so-called essential products such as "food, soft drinks") and 2,1% (newspapers and medicines reimbursed by Social Security, in particular).

The so-called "social" VAT consists of increasing the VAT rate (reduced rate and/or standard rate) to allocate the additional VAT revenue to the Social Security budget, while at the same time reducing employer and possibly employee contributions.

Voted in 2012 during Nicolas Sarkozy's five-year term, it was immediately repealed by François Hollande after his election.

But in mid-May, President Emmanuel Macron brought the issue back to the table, arguing that it was necessary to "look for money outside of work alone" and calling for the opening of a "project" on this issue with social partners. On Tuesday, François Bayrou followed suit and called for an "effort from all French people."

"Immediate resource" but "inequitable"

The primary benefit of increasing VAT is to "give resources back to businesses," Gilbert Cette, president of the COR (Retirement Advisory Council) and professor at Neoma Business School, said in La Tribune Dimanche on Sunday.

For this liberal economist, "the resulting gain in competitiveness would give (companies) room to maneuver to increase their competitiveness and hire or maintain employment." The timing seems opportune, according to him, since "inflation is particularly low." "One VAT point would bring in between 8 and 12 billion euros depending on how the rates are adjusted. It's an immediate and easy resource," he argues.

More "mixed", the President of the Court of Auditors, Pierre Moscovici, recalled on Monday that the measure "already exists" since "a significant part (28%) of our health insurance expenditure, our social expenditure is financed by VAT".

Furthermore, the former socialist minister deemed the measure "unfair": "It creates problems of fairness, of significant inequalities, because the proportion to be consumed, that is to say the share that each person consumes of their income, is higher among those who have less."

"Unacceptable"

For the head of the CFDT, the largest trade union, Marylise Léon, interviewed on RTL, "the priority" is "the pension issue" debated until June 17 by some of the social partners (Medef, CPME, CFDT, CFTC and CFC-CGC) and not "discussing macro-budgetary issues worth billions of euros."

The so-called social VAT is "a sham, it's the most antisocial tax there is because the poorer you are, the more you pay," Sophie Binet, the leader of the CGT (General Confederation of Labour), blasted at a press conference on Tuesday. "The employers are starting to quantify their demands, telling us they would like to raise €40 billion (...) or around four percentage points of VAT," which means "a massive drop in purchasing power for employees," the union leader continued.

On the political side, the left remains firmly opposed to this measure, like the rebellious MP Manuel Bompard, who believes that it would be "totally unacceptable" and "totally scandalous."

Employers' plebiscite

"Is it up to workers to pay for the health of all French people, the nation's family policy?" CPME president Amir Reza-Tofighi, who favors a transfer of social funding to other taxes such as VAT, pretended to ask in early April. A position also defended by the Medef (French employers' association).

The U2P (the third largest employers' organization) suggests eliminating the CSG (general social contribution) and CRDS (contribution to the repayment of social debt) for all those who work over five years, and distributing these 116 billion euros as compensation through a mixture of VAT increases, additional taxation of dividends, property income and inheritance, and an increased contribution from retirees.