Raising taxes is not the solution, only a structural reform policy, efficient management of our public finances, and investments for the future will allow us to preserve our standard of living and social protection, writes Olivier Klein.
The compulsory contribution rate has been on an upward trend in France for a long time reaching more than 43% of GDP in 2023, the highest in the European Union (around 6 points higher than the euro zone average).The marginal tax rate on household income stands at 55.2%, compared to 47.5% in Germany. It is higher than in Italy, Spain, the Netherlands and Belgium.
The capital tax rate still remains higher than the European average despite recent reductions which are very helpful to the French economy, which has been well documented. As for businesses, despite the efforts of recent years, they are subject to production taxes that are more than 2 points of GDP higher than the euro zone average and almost 4 points higher than Germany.
One of the highest levels of redistribution in the OECD
Nor can the increase in household taxes be aimed at combating income inequality. After redistribution, in France the latter is one of the lowest in Europe. The Gini index of post-redistribution inequality stands at 0.298, while Germany is at 0.303; Spain, Italy and the United Kingdom have levels between 0.320 and 0.354. In addition, the level of inequality in France has remained considerably stable since 1990. France actually has one of the highest levels of redistribution in the OECD. Let us also add that the share of national income after redistribution held by the richest 1% in France is also one of the lowest after redistribution at 7.17%, compared to 8.72% in Sweden, 10.32% in Italy or 14.35% in the United States. Likewise, the poverty rate is lower than the European average.
Thus, increasing compulsory contributions, as well as the level of redistribution, would be counterproductive, leading to effects contrary to those desired regarding both employment and growth. The endless race between spending and public contributions that are significantly higher here than elsewhere has continued to cause an increase in debt, which has now reached worrying levels. Remember that between 2000 and 2022, French public debt grew twice as quickly as that of the euro zone. The result is an increasing weakening of the French economy, without gains in terms of relative growth.
Reform policy
Even more taxes, beyond an already high threshold, would lead to a weakening of our competitiveness and our attractiveness, and therefore our employment rate, which is already low compared to that of the countries of northern Europe. Which would in turn lead to more inequalities before redistribution, employment being decisive in this matter. Thus leading to raising the redistribution rate again, and therefore causing more taxes again. The vicious circle is complete.
Professor of economics and finance at HEC.