It is an Arlesian thing that Medef has decided to call up again: the social VAT. “At the level of the SMIC, there is always a cost of 368 euros for the employee. I am clear: it is necessary, as was done in part with unemployment contributions, to transfer part of the social cost to taxation,” explained Patrick Martin, its president, on the set of BFM Business, on the occasion of the French Business Meeting (REF), the end-of-summer event for the French employers’ association.
Specifically, Medef wants to reduce contributions – whether employers’ or employees’ – and believes that one way to compensate for this measure is to increase VAT at the same time, so as not to penalise public finances. This measure is not new, since it was already included in the programme of candidate Nicolas Sarkozy during the 2007 presidential elections.
State control of the social system.
This is all the less new since the proportion of taxes in the financing of social security has already increased considerably in recent years: while contributions accounted for 90% of the financing of the “Secu” in 1990, this proportion fell in 2022 to 54%.
And rightly so, part of their income now comes from taxes, as is the case with CSG: this is what we call ITAF (tax and assigned taxes). They accounted for 31% of the funds in 2022.
One way, say the proponents of this trend, is to split Social Security into two distinct parts: on the one hand, contributions would finance “risks” (illness, pensions) and, on the other, taxes would finance universal benefits, where it is more a question of “helping” those who need it, than of “insuring” those who work. For detractors, the increase in power of the ITAF to the detriment of contributions leads the State to regain control over unions that negotiate on equal terms, at a time when the Government is increasingly trying to impose itself in debates on unemployment or pensions.
VAT already contributes a lot
VAT is already part of the solutions to finance social protection: the State collected only 45.7% of this value-added tax in 2023 and returned 60.3 billion euros, just under 20%.
This is a new factor, since until 2017, the State collected 90% of VAT revenues. But since then, the amounts donated have multiplied. In the latest draft law on the financing of Social Security (PLFSS), article 9 also paved the way for an additional part of VAT to be allocated to social retirement plans, with a view to the disappearance of special plans.
Transforming contributions into additional VAT would have significant effects: each contribution point would be worth between €5.1 and €8.9 billion in 2021, depending on the social sectors to which it is dedicated. In order for VAT to raise around €7 billion, we would have to increase VAT by as much as we would reduce contributions.
Uncertain effects
The economic consequences of social VAT would be multiple. At the business level, the reduction in contributions would free up additional margins for companies based in France: those producing in the country would see their wage conditions reduced, unlike those importing goods.
The consequences on employment could be favourable, as noted in a study by economist Clément Carbonnier of Sciences Po: he notes that “the extent of this beneficial effect remains uncertain” and that “the increase in employment would be the sum of sectoral increases and decreases.” […] with a significant redistributive impact.
The effects on purchasing power are also unclear: but VAT, unlike contributions which are only based on employees, is borne by each consumer, so pensioners would also be affected. On the other hand, the poorest pay as much, if not more, in proportion to their income, than the richest. The La Boétie Institute, close to the left, thus maintains, with figures to support it, that VAT “eliminates about a quarter of the effects of redistribution in France”.
The “social VAT” would therefore only be social in name. The attitude of companies to the reduction in contributions could lead to three scenarios, in terms of inflation, as Bercy mentions: either they increase wages, or they lower their prices without taxes (with the increase in VAT, prices stagnate), or they maintain tax-free prices (and prices rise).
Inflation could therefore be expected, in addition to the negative effects on poorer households mentioned above. In the two countries that adopted such reforms (Denmark and Germany), inflation nevertheless remained at zero or low (1%). But this was in a period when overall price increases were already low.
Source: BFM TV
