Social VAT: danger for pensions

By Sébastien Crépel, co-editor

They're all thinking about it, but are keeping their mouths shut for now. Édouard Philippe, Gérald Darmanin, Gabriel Attal, Bruno Retailleau... The topic? Funded pensions. Its introduction in France is the subject of discreet lobbying to impose it as a solution to the supposed inability of the pay-as-you-go pension system to cope with the demographic shock. After eight reforms since 1993 supposedly "saving" our system, the results speak for themselves. The architects of these reforms, who have gradually tightened the conditions for qualifying for benefits without addressing the system's deficit, could not have better prepared the ground for French-style pension funds.

The same people who proclaimed themselves defenders of the pay-as-you-go system—a system that, thanks to contributions from working people, allows retirees' pensions to be paid without recourse to private savings—are ready to let the wolf into the sheepfold. After refusing to expand pension funding as the growth in wealth would allow, they want to force employees to contribute a "capital" out of their own pockets to "supplement" their contributions. Behind the scenes, the Medef (French employers' association) is getting active. In "Le Monde," the bosses' boss, Patrick Martin, argued on February 27: "We must seek resources currently allocated to the family and health insurance branches (of Social Security – Editor's note), with the loss of revenue for these two systems being offset by increased taxation." That is, a social VAT, a term recently used by François Bayrou.

To be operational and provide an income to retirees, the capitalization pillar cannot rely on contributions from immediately available workers as in the pay-as-you-go system: it must be financed through the individual savings accumulated by employees throughout their lives. This means that before seeing the first pension paid with capitalization, today's workers will have to pay twice: once to finance the pensions of today's retirees in the pay-as-you-go system, and a second time to build up their own retirement savings.

Since employers don't want to pay a penny more, their idea is to transfer the financing of social benefits to a tax like VAT: thus, it is the consumer – employee, retiree, unemployed, student, etc. – who will pay when they shop. The risk that comes to mind is that of a price increase. But there are others: by "taxing" social protection, employees' rights are reduced. Emmanuel Macron knew how to take advantage of this, at the time of the reduction in unemployment contributions initiated by Prime Minister Édouard Philippe. On July 9, 2018, the President of the Republic explained to parliamentarians gathered in Congress: "National solidarity is increasingly financed by taxes (...), this also leads to transforming the very philosophy (...). We must draw all the consequences: there is no longer a right to unemployment, in the sense that we traditionally understood it (...), since all taxpayers have paid it. "In short, while contributions create rights, taxes do not: everyone is accountable to society as a whole. This is the transformation of social protection into public charity. It also opens the door to all the sanctions and restrictions in the name of hunting down "abuses," for which the unemployed are now paying a heavy price.