On August 23rd, on the eve of the G7 summit in Biarritz, south-west France, French President Emmanuel Macron hosted a gathering at the Élysée Palace of 34 CEOs of multinational corporations, calling on them to engage in an effort “to reduce inequalities”. In neoliberal business jargon, he spoke of the forming of a “coalition of corporations” to create “inclusive growth”.
In Biarritz the next day, during an interview with French TV channel TF1, he pledged that the seven world leaders who were to meet in the town were going to take “concrete measures” in the fight against inequalities. However, in the final, and slim, communiqué at the end of the G7 summit, the theme was absent.
Now, two months later, his own economic policies have been shown to have produced a deepening of poverty in France, and a rise in social inequalities.
France’s national institute of statistics and economic studies, INSEE, this month published its preliminary estimation on income and wealth distribution in the country in 2018, and which indicates that inequalities have risen more last year than during any other year since 2011.
The calculation is made according to what is called the Gini index, the most frequently used method of measuring inequality among residents of a country, by which the closer the result is to 1, the greater the gap between the haves and the have-nots. The opposite is true the closer the figure is to 0. The estimation by INSEE for 2018 is an upwards progression of inequality by 0.005 points, to reach 0.294.
Previously, thanks to the social welfare apparatus and its system of redistribution, France succeeded in reducing the strong jump in inequalities that were seen during the financial and economic crisis when, between 2009 and 2011, the Gini index rose from 0.290 to 0.306. In 2013, the coefficient fell to 0.288 – which was lower than the level of inequality recorded in 2006.
Since 2013, the coefficient stabilised at around the same level. But, if the INSEE evaluation is confirmed when the final figure is established in September 2020, inequality in 2018 will have been higher than that of 2009, even though that year France’s GDP had shrunk by 2.8% while last year it grew by 1.2%. There is no sign there of the effects of so-called “inclusive growth”.
Such a yearly rise in the Gini index of inequality has only happened twice since 1996; in 1998, with the effects of the bursting of the “dotcom bubble” and again in 2010 as a result of the financial crisis. The difference in 2018 is that it is the result of political policies. Last year was notably when, as of January 1st 2018, the French government introduced tax breaks on capital and income from it, and INSEE concludes that the rise in inequality is the result of the flat tax, which limits taxation on income from capital at a ceiling rate of 30%.
This is for two reasons. The new flat tax – the prélèvement forfaitaire unique, or PFU – reduced taxes for the wealthiest, and accounts for a rise of 0.001 in the index. But by encouraging the payment of dividends, the PFU has dug a deeper divide; with the strong increase in dividend payouts, the distribution of wealth for the richest, before any redistribution, is estimated to be responsible for a further 0.004 rise in the Gini index.
The PFU therefore acts as a machine for creating inequalities, concentrating wealth on property revenue and blocking redistribution, and encouraging the payment of dividends that are disproportionate to the performance of companies. While the government might claim that an increase in dividend payments, and the subsequent tax paid on them, allows it to claw back the income lost through the flat tax, it no longer applies significant wealth redistribution policies and therefore this has little effect on inequalities.
Nor does the PFU meet the supposed aim of encouraging productive investment. The French private sector does not lack the means with which to invest. The household saving ratio has reached a record level of 15%, while corporate savings are superabundant, and monetary policy allows for low-cost and wide access to credit.
In short, the PFU was not urgent in terms of economic reform, and once that is taken into account it can be regarded for what it is: a counter-redistribution mechanism for the benefit of the wealthiest in society.
It is also important to note that INSEE, “because of the constraints of the availability of data”, has not taken into account the effects of the scrapping of the ISF wealth tax (impôt de solidarité sur la fortune, or solidarity tax on wealth), which was transformed in 2017 into a tax on property assets, the IFI (impôt sur la fortune immobilière). INSEE cited a study made this year in which the scrapping of the ISF was likely to cause an increase in the Gini index of 0.002 points. It is therefore likely that the rise in inequalities will be revealed to be much worse than suggested by the INSEE estimations published this month.
There remains the question of whether fiscal reforms in 2019 and 2020 will change the situation, notably the scrapping of property tax for around 80% of households, and a reduction of taxes paid by lower income earners. A study by France’s public policy institute, the IPP (a think tank partnered by academic institutions), and which was also published this month, notes a “rebalancing” of measures for what are called, in the widest sense, the “middles classes”. For the IPP, this will mean that over the period of 2018-2020, this section of the French population that lies between the 25% most poor and the 25% most wealthy, will benefit the most from the fiscal measures introduced over the past three years, with an increase in disposable income of around 3%. The wealthiest 1% of the population, it found, would see disposable income rise by around 2%.
It should be noted here that this “rebalancing” is not the result of a political will in isolation, but rather is an attempt by the centre-right government to defuse a social crisis which erupted into the “yellow vest’ protests that began last winter, and this without dismantling the fiscal reforms it has already introduced since coming to power in June 2017.
Meanwhile, the increase in dividend payments linked to the new flat tax, and the added yearly gain in income for the wealthiest through the abolition of the ISF wealth tax, represents a significant amount which is not included in the statistics.
“After deducting what the new IFI brings in, the reduction in taxes is in the order of around 5 billion euros, with an average gain of 7,500 euros per household,” commented economist Pierre Madec, from the French economic research institute, the OFCE (partnered with the Paris political sciences school Sciences-Po), in a recent interview with daily Libération. “But one must be careful, everything is in the word ‘average’. The richer one is, more the gain is significant, progressing exponentially.”
Above all, the biggest losers from these different measures are unquestionably those who are situated among the 10% of lowest income earners, for whom the gains are either weak or inexistent, or who even suffer a loss in income. It is they who contribute the most to the financing of the tax breaks for the middle classes, through the multiple contemporaneous reductions in welfare spending, which include a reduction of 1.4 billion euros in spending on housing benefits in 2020, the 800 million euros to be saved by a reform of the unemployment benefits system, and also a de-indexation of social benefits. The result must inevitably lead to a widening of inequalities, notably between the two extremes of the social ladder.
INSEE also gave its estimation of the poverty rate in France for 2018, which it foresees rising year-on-year by 0.6%, to reach 14.7% of the population. This epresents the highest number of people living in poverty since the 1970s. The poverty rate is calculated as that of people living with 60% less income than the median income – median income being that which lies in the exact middle of all amounts of income.
However, this estimated rise in poverty takes into account the fall in housing benefits for those living in social housing allocations but not the fall in rents that went with it (nevertheless, while rents can rise in the future, the loss of housing benefits is final). If one takes this statistical element into consideration, the estimated poverty rate is situated at around 14.2%, a yearly increase of 0.2%. At that corrected level, it is the highest since 2011 (which was itself the highest since 1996), and represents 9.1 million people.
INSEE explains this rise in poverty as the result of “the increase in median living standards” and “relatively dynamic salaries”. But if that increase leaves yet more people in the category of those with 60% less than the median income, it is precisely because the revenues of the poorest are not progressing in line with others. That in turn suggests that the steepest rise in income is among those at the top of the social ladder.
From all that, it is difficult describe the policies of Emmanuel Macron as other than those of class – that is, in favour of the middle classes to gain their acceptance of structural reforms, of the labour market, of pensions, and the unemployment benefit system, and also the programme of privatisations. Meanwhile, it already appears likely that Macron’s presidential term will be marked by the reversal, and amid no major economic crisis, of the trend in inequalities in France.
This is hardly a surprise given his policies linked to the “trickle-down” theory, whereby making the wealthy wealthier mechanically benefits those less well off. In fact, this illusory notion openly benefits the richest, to the detriment of those who are the most financially fragile.
By favouring those with large property assets, the French president is taking a considerable political risk in a country that is largely intolerant of deepening inequalities. At a moment when economic growth in France is stagnating at a low level, while that elsewhere in the world is subsiding, he is playing, more than ever, with fire. There is good reason that he has never been able to throw off his nickname of “president of the rich”, for it truly sums up his policies.
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- This is an abridged version of an article first published by Mediapart in French, which can be found here.
English version by Graham Tearse