It is likely that the debate on the increase in compulsory levies will return to France, which is legitimate. After all, our public debt, even slightly down in 2022, remains high at 111.6% of GDP (2,950 billion euros). The benchmark interest rate on this debt, the ten-year OAT, has risen sharply over the past year. It seems to have stabilized at 3.2%, which is still below inflation, but the debt burden remains something to watch and it would be presumptuous to say that interest rates will no longer increase. We do not know anything.
The public deficit in 2022 is also down to 4.7% of GDP. But the last few years have made us lose our sense of numbers: 4.7% is huge. Our public expenditure – State, local authorities and Social Security – amounts to 58% of GDP and public revenue, essentially from compulsory levies, to 53%. Yes, our public sphere lives beyond our means, and for a long time. Our economy has been installed since the mid-1970s in the regime of spending cowardice.
Why only spendthrift? Because it is difficult to say that France would be lax in terms of tax and social security contributions. In 2022, the rate of compulsory levies has risen to 45.3% of GDP. It has never been so high. France is, on this subject, part of the European top three, with Denmark and Belgium, far ahead of the others. Admittedly, the increase in the rate of compulsory levies in 2022 must be seen as one of the rare positive effects of inflation, which mechanically increases VAT receipts, corporate income tax and part of employee contributions and employers (because wages are increasing). The financial reality of our country is as follows: enormous levies, but such a gigantic expenditure that it leaves room for colossal deficits. Common sense reasoning therefore calls for acting on the regulation of spending more than on levies to reduce our deficits. Two arguments point in this direction.
The perverse effects of the tax shock
First, a tax shock is often paid for by reduced activity and job losses. Alain Juppé and François Hollande can attest to this. The first, head of government, increased the VAT in 1995 and delayed economic recovery by several quarters. The second, president, wanted in 2012, with the best will in the world, to quickly reduce the deficits by massively increasing taxes, which resulted almost immediately in a decline in growth… and in disappointing tax revenues.
Second, our system of compulsory levies is progressive and it is difficult to see which taxes or charges should be increased to obtain a significant return in terms of public revenue. What’s more, it is complex. Some levies are very progressive, such as personal income tax, which hits income at 45% above the bar of 169,000 taxable annual euros, corrected for the family quotient. Others are proportional in appearance but progressive in reality, such as the CSG, from which certain low-income households are exempt. Finally, social contributions are progressive at first, then degressive in a second. Finally, our levies are largely progressive, which hampers the effectiveness of policies to reduce deficits through revenue.
Xavier Jaravel, from the London School of Economics, recalled the other day in The echoes that tax receipts decreased beyond taxation of 60 to 65% of high incomes and 30 to 35% of capital incomes. But here we are! In other words, to recover significant revenue, the government should increase the VAT, that is to say contribute to inflation, or the CSG, that is to say lower income. Apart from the fact that this would have negative economic consequences, it would obviously be political suicide. Therefore, in France, any action on compulsory levies can only generate marginal revenue, absolutely insufficient to reduce the debt. Controlling spending and above all, being collectively more productive by working more and working better: this is our lifeline. We always come back to it.