The inequality of the spread of wealth in France is so often, and has been for so long, the subject of controversy and debate that one might just be tempted, expecting a feeling of déjà vu, to overlook the latest results of a study by the French National Institute of Statistics and Economic Studies (INSEE). But that would be an important mistake.
The study, a wide-ranging analysis of the French economy and published last week, reveals that the gap in France between the ‘haves’ and the ‘have-nots’ is even more gaping than was previously thought. It accordingly sharpens the focus on what is at stake in the vast programme of fiscal reform that the new French socialist government will soon present before parliament.
It also offers a sober view of the extravagant attack launched against President François Hollande’s economic programme by British Prime Minister David Cameron last week, in which he offered to “roll out the red carpet” to wealthy French tax exiles. But more of that later.
Over recent years in France, there is one key figure, frequently at the fore in the arguments over the inequality of the spread wealth, that has hardly changed more than a decimal point; the top 10% of the richest people in France own almost 50% of the country’s wealth. But however stunning that fact is, it does not, as the latest INSEE study notes, give the true measure of the extent of inequality.
Among the many sections of the panoramic INSEE report, entitled ‘The French Economy’, is one that offers a detailed account of the state of savings and wealth among French households. It begins with the unsurprising observation that the first statistical inequality concerns age. “The average net wealth among households in which the person of reference is aged less than 30 years is 37,000 euros, which is ten times less than the average net wealth of those aged between 60 and 69 years, and which amounts to 356,000 euros,” the study found.
But then comes the division among social categories, and the surprises begin. “The net wealth of the 20% least wealthy households (meaning those who are among the lowest fifth in terms of standard of living) amounts to about 74,000 euros, which is only just equivalent to one third of the net average wealth of all households,” the study continues. “Households in the next fifth have a net wealth equivalent to half of all households.”
While the middling three and four fifths own, respectively, three-quarters and slightly more than three-quarters of the average net wealth of all households, INSEE observes that the top fifth in terms of standard of living possesses two and a half times more than the average wealth of all households. “The richest 20% of households thus owns 49% of the whole of the net wealth, equivalent to eight times more than the households in the lowest fifth,” INSEE observes.
The table contains further information that is particularly relevant to the new socialist government’s fiscal reform plans. “The concentration of wealth is all the more notable concerning financial assets as opposed to non-financial assets,” notes INSEE. “The [wealthiest] top fifth of households possess 55% of the financial wealth compared to only 44% of the non-financial wealth.”
Cameron’s 'lowest offer' hypocrisy
There are several methods of measuring inequality of wealth. Apart from analyzing the population by categories of households defined by their standards of living, one can also use categories defined by levels of income, or quite simply categories defined by the level of their wealth. If one used this last measure, the results are even more shocking, as underlined by INSEE. “The 20% of richest households own 71% of the total wealth,” it reports.
Concerning savings accounts, INSEE found a different situation. Three-quarters of the total amount are owned by households among the lowest 20% in terms of standard of living.
In the past, studies like that of INSEE provided a sort of measuring stick by which the inequitable fiscal policies led by Hollande’s predecessor, Nicolas Sarkozy, could be judged. Thus it was that his many tax break gifts offered to the wealthiest, from the lowering of the ISF wealth tax to the decrease in inheritance tax, via the so-called ‘fiscal shield’ (le bouclier fiscal) which lowered the maximum amount of taxes to which the richest could be subjected, had no other effect than to increase the wealth gap.
Now, in the new political context, such studies underline the urgent necessity of a profound reform of the tax system. Not only by re-establishing the levels of taxation that Sarkozy largely succeeded in lowering, but also in order to align the level of taxation of capital with that of taxation of labour – as the Left has long promised to do.
The figures revealed by INSEE not only amount to an argument for a true fiscal ‘revolution’, but also sour the remarks made by David Cameron last week, while in Mexico at the G-20 summit, in which he targeted the new French government’s economic reforms.
"I think it's wrong to have a completely uncompetitive top rate of tax," Cameron told an audience of business leaders at a meeting on the sidelines of the summit, promising to “roll out the red carpet” to those French companies and the wealthy who wanted to flee the increase in taxes planned by Hollande’s government. The attack was immediately and gleefully seized upon by the French Right as further ammunition with which to snipe at the socialist programme, which includes a pledge to apply a 75% tax rate on earnings above 1 million euros.
Cameron’s comments were hypocritical (and in more ways than one, as The Finnacial Times reports here). Firstly, the British system that attracts foreign managerial classes to London amounts to nothing less than fiscal dumping, in which the tax that they are to be subjected is calculated on a pro rata basis of the number of days they spend in Britain. Furthermore, the logic of this fiscal 'lowest offer' approach, which Britain has long been the champion of, has significantly contributed to the digging of public debt among those European countries that adopted the mantra. As a result, many have now resurrected abandoned taxes, using various means, in an effort to correct their deficits.
But beyond this, as the INSEE report abundantly demonstrates, a reform of fiscal policies in France, subjecting the wealthy to a higher and fairer share of the tax burden, is nothing other than necessary social justice.
- Laurent Mauduit is one of Mediapart's specialist writers on economics, finance and social affairs. Previously economics editor of French daily Libération, and a senior economics journalist and editorialist with Le Monde, he is also a co-founder of Mediapart.
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English version: Graham Tearse