France Reviews Changes To Social Security Taxes
13 June 2013
Posted by: Author: Ulrika Lomas
Author: Ulrika Lomas
The French High Council on the financing of social welfare in France has published its report, assessing how best to diversify and to allocate revenues to the social security fund, with the aim ultimately of reducing the fiscal burden on labor.
In its report, the High Council underlines the complexity of the task. When selecting the most suitable levies for the sustainable financing of social welfare, it is vital to take into account a number of factors, including the specific impact of the taxes on growth and employment, the High Council explains. In addition, it is imperative to ensure tax equity vis-à-vis wealthy and low-income households in France, to examine the potential of the envisaged taxes to alter the behavior either of individuals or businesses, and to ensure the suitability of the proposed taxes to the target spending area (health, family, retirement), the High Council maintains.
Given the challenges, the High Council decided to focus its report on four main categories. These areas include limiting existing social tax breaks ("les niches sociales") in France, taxes on income from assets, environmental taxation, and behavioral taxes.
The High Council underlined the importance of re-evaluating the pertinence, efficiency, and cost of existing social tax breaks, pointing out the fact that social tax shelters currently represent a significant cost to the state of EUR48bn (USD64bn). Existing tax benefits must therefore be revised to ensure that they still fulfil their initial objective, the High Council stressed.
On the issue of environmental taxation, the Committee suggests standardizing the taxation of alcohol in France, highlighting the fact that wine in France is currently subject to a very low level of tax. Furthermore, the Committee points out that another body, the French committee on ecological taxation (CFE), has already been tasked by the Government recently with examining ways to reform environmental taxation in France. It makes clear that the idea of introducing an environmental contribution to finance social welfare should therefore only be considered at a later date, namely in the medium-term.
Alluding to the fact that employers' contributions largely finance the family sector of social welfare, the High Committee points out that employers in France have called for a reform, arguing that their contributions do not flow solely to workers. The High Council advocates as one option that employers' "family" contributions could be replaced with a tax on households.
Such proposal is likely to meet with fierce opposition, however. In 2012, former French President Nicolas Sarkzoy tried to push through plans to abolish these employer contributions, and to replace the charge with both a rise in value-added tax (VAT) – the infamous "social VAT" – and a rise in the general social contribution (CSG) on income from assets. Once in power, the Socialist Government immediately repealed Sarkozy's planned tax reform.