Living Standards in France
3rd Dec 2022
The measures taken to preserve living standards over the past two years have borne fruit, says a new study.
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A combination of tax reductions and temporary exceptional grants totalling nearly €13 billion meant that households were better off on average by €280 per person a year in 2020/21, according to the national statistical office, Insee.
Perhaps the most emblematic of those measures has been the reduction in income tax, with the lowest rate of tax having been reduced from 14% to 11%.
Another major change in taxation has been the progressive scrapping of the main local domestic rates, the taxe d’habitation. Abolition of the tax has been taking place over several years and will finally end next year for all principal residences. Second homes will, however, remain liable and some owners may be paying substantially more.
These two reductions alone account for 90% of the improvement in living standards that took place.
The government also introduced several exceptional payments (aides exceptionelles) arising out of Covid and the increase in fuel prices.
They were, notably, an increase of €100 per child the school grant, an energy grant of €100 and an 'indemnité inflation' of the same amount. There is also an aide exceptionnelle de solidarité of €28 per adult, plus €14 to those on the lowest incomes.
Nevertheless, given the weight of the reductions in tax in the overall calculation, the improvement in living standards was not equally spread, with those on the highest incomes benefiting the most.
Those on the lowest income scale (around 10% of the population) obtained an increase of around €100, whilst those on the highest incomes €500, as can be seen from the graphic below.
In yellow are the exceptional measures and in blue the permanent changes.
The authors did not include in their analysis the support payments and other forms of relief to businesses given under Covid. Neither did they include the exemption from social security contributions for profit sharing payments (prime de partage de la valeur) made by an employer to their employees. Both measures were excluded as they were introduced in 2019, before the period of the study.
Since 2021 the government have continued their policy of making means-tested exceptional payments to households. The energy grant has increased to €200 for some households, and a means-tested grant of between €50 and €200 for those who heat their home by wood.
Increases in energy prices have also been capped at a maximum of 4% until the end of the year. There has also been in place a cap on fuel prices at the pump, which remains in place, although it was reduced last month.
There have also been large increases in social security benefits, most (although not all) of which have been in line with inflation.
The amount of the profit-sharing bonus which can be paid to employees has been tripled to €3,000 (up to €6,000 in some cases). In a similar vein, employees can receive up to €7,500 in tax-free overtime payments (up from €5,000).
Increases in rent levels have also been capped at a maximum of 3.5% and supplementary charges on rental properties have been prohibited unless the dwelling meets minimum energy efficiency standards.
Next year the television licence fee (currently €138) will be abolished.
The government have also recently announced (rather gimmicky) assistance towards the repair of electrical items in the home, which varies by type of product, from €10 for a coffee machine to €45 for a computer.
As we reported recently, the government has also continued with its programme of reducing taxes on business. Last month the government announced a reduction in social security contributions for small business owners whose professional income is at the level of the minimum working wage (SMIC), currently nearly €1,700 a month gross. That follows a reduction in social security rates for all small businesses, effective from 1st Oct.
The impact of the various initiatives made by the government has been noted by the European Commission, who in a recent report stated that France is the only country in Europe where living standards rose in 2020/21.
According to the report, living standards in France increased by +1.5%, a gain of €330 per habitant. That compares with relative stability in Germany (+0.1%) and falls in Italy (-0.7%) in the UK (-2.3%) and in Spain (-6.8%).
Through the measures introduced this year the French government have also stated that their objective is to maintain an increase in living standards in 2022 of +0.5%.
With the significant increase in inflation in recent months it is by no means clear that objective will be achieved. The European Commission consider that the war in Ukraine has made the second half of the year more challenging, when the purchasing power of households right across Europe will fall.
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