The French social shift will cost EUR 10 Bn!
After weeks of often violent demonstrations by so-called yellow vest protesters, the president Emmanuel Macron responded on Monday, December 10th with four social measures to boost the spending power of workers and retirees. The flagship measures announced by the French president are:
(i) A net increase of EUR 100 for an employee at the minimum wage (SMIC), via a rise in the activity premium of EUR 80 and a reduction of charges of EUR 20. This measure promised by the president will take effect on January 1st, 2019 and will not be borne by private sector since it is the public authorities that will pay this activity premium;
(ii) Overtime will be tax free. Already dissocialized (exemption from social security and employer contributions) in the future 2019 budget, overtime will now be tax free (you will not pay income tax on it). A popular social measure implemented in 2007 under Nicolas Sarkozy and removed in 2012 by François Hollande;
(iii) The increase of the generalised social security contribution (CSG) canceled for retirees who earn less than EUR 2000 (net) per month;
(iv) Finally, the president mentioned a year-end bonus which will be without tax for the companies who wish to pay it.
EUR 10 BN
The government says the total bill of conciliatory climbdowns so far will be around EUR 10 Bn. That includes around EUR 6 Bn for President Macron's new measures announced on Monday and the estimated loss of EUR 3.9 Bn the government will no longer levy from its now-abandoned carbon tax hike on fossil fuels. According to the latest forecasts of September 2018 made by the Ministry of Finance, the public deficit for 2019 was revised upwards to 2.8% of GDP against 2.6% previously, mainly because of the lower growth than anticipated. The recent measures to respond to the “state of economic and social emergency” decreed by President Macron will weigh on the French deficit in 2019 in the absence of compensatory measures. It is well between 0.4 and 0.5 percentage point of GDP that will have to be financed as of 2019. There is, therefore, a good chance that the deficit will return above the absolute limit of 3% of GDP set by Brussels, which will have a negative impact on the credit quality of France. Italy could take advantage of this French budget gap to legitimize its own…
Julien Moussavi, Head of Economic Research
Sources: Beyond Ratings, Reuters