Law on the financing of the social security system

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A law governing the financing of France's social security system was adopted on 2 December 1997. This legislation continues along the same lines as the plan put forward by the previous Government and aims to reduce the social security deficit radically.

In the autumn of 1995, the then Prime Minister, Alain Juppé, proposed a series of social security reforms, blamed by many observers as being one of the main elements sparking off the widespread strikes which occurred in November and December of the same year. This plan aimed to restructure the social security system radically, in a bid to:

• balance the social security budget prior to the introduction of the European single currency;
• extend social security cover to the largest number of people in an attempt to reach the goal of "universal insurance"; and
• give decision-making powers over the financing of the social security system to Parliament.

It was decided by executive decree in the spring of 1996 that it would become Parliament's responsibility to pass laws governing the financing of the social security system. Until this date, the budget had been set out by the Government, which has overall control of social security funds, after consultation with trade unions and employers, which jointly run the system. Some unions, such as the CGT-FO, were angry at the threat posed to the joint management principle while others, such as the CFDT, thought it desirable that the Government should tackle the budget, which for several years had exceeded that of the country. The left-wing Government, which came to power in June 1997 (FR9706149F), has not reversed the principles of the Juppé plan but has made substantial alterations to several measures. The law on the financing of the social security system voted on the 2 December 1997 aims to reduce the deficit of the general scheme (sickness insurance, retirement and family allowances) from an expected FRF 37 billion in 1997 to FRF 12 billion in 1998, with the objective of balancing the social security budget by 1999.

The new law

The main provision of the new social security finance legislation concerning receipts is the transfer of health insurance contributions to the "universal social security contribution" (Contribution sociale généralisée, CSG), which is deducted at source by the tax administration (FR9710170F). The Government's measure is designed to lower the contributions paid by employees and in doing so increase their purchasing power. The CSG on pay and savings has been increased by 4.1 percentage points to 7.5%. In compensation, health insurance contributions have been lowered by 4.75 points from 5.5% to 0.75% of pay. This shift automatically increases workers' purchasing power by 1.1%. The increase in CSG is limited to 2.8 points for pensioners and unemployed people, and health insurance contributions will decrease by the same percentage. The shift should provide social security additional revenue of FRF 4.5 billion. The other measures aimed at increasing revenue deal primarily with a tax of 2.5% of total drug sales levied on pharmaceutical companies, and with the creation of a new tax on tobacco products.

The savings made will primarily concern :

1. family allowance, which will be mean- tested whereas it was previously paid at a flat rate. A ceiling has been set of FRF 25,000 per annum for a family with two children and FRF 32,000 in the case of a family where both parents work or in the case of a one-parent family. This ceiling will be increased by FRF 5,000 for each additional child. This measure was severely criticised both by unions and family associations (FR9707156F). Parliament added an amendment making this a transitional measure until the entire family policy area has been reviewed.
2. the halving of the ceiling for benefits covering childcare at home(Allocation de garde d'enfant à domicile, AGED). The reduction in social security contributions paid by families with domestic employees will be decreased by 25% for those earning less than FRF 300,000 per annum and by 50% for those earning in excess of this figure; and
3. the extension of the time-frame for the "reimbursement of the social debt" (Remboursement de la dette Sociale, RDS.) levy, aimed at reducing the social security deficit. This 0.5% tax levied on salaries was one of the important measures set out in the Juppé plan. It was supposed to be a temporary measure, in place until 1999, but Parliament has decided to extend its lifetime until 2004.

Union reaction

The unions voiced their opinions -which vary greatly - primarily during the drawing up of the law. The CGT-FO rejected the bill, which it saw as a continuation of the Juppé plan. It is opposed to the CSG which it says increases the share of the sickness insurance scheme financed through taxation, which goes against the goal of preserving the French healthcare system. The confederation is also opposed to means-tested family allowance and to the extension of the time period for the reimbursement of the social debt. The CGT is especially critical of the first two points, and its greatest fear is that a means-tested family allowance "which in the long term will transform a guaranteed benefit into an insurance system, could be extended to other social security benefits". The CFTC, which was in favour of the general direction of the reforms undertaken by Alain Juppé and which has made family policy one of its priorities, has been critical of family policy and in particular of family allowance and the AGED. The CFDT, which also took a qualified stance regarding the measures concerning the family, approves of the fact that "reforms are still afoot." This confederation, a leader of which is currently the president of the National Sickness Insurance Fund (Caisse nationale d'assurance maladie) put forward proposals for the reform of the social security system in 1995. Many of these were included in the plan set out by the Juppé Government.

Commentary

The fact that the new Government has recognised the need for reform means that the restructuring of the social security system, begun in 1995, is now well and truly underway. Reforms have not been the object of demonstrations or strikes this year, which does not mean that all unions and employers have agreed to the principle of reform. However, criticism and opposition have probably been dampened during a period when the unions were mainly preoccupied with preparations for elections to the Prud'hommesindustrial tribunals (FR9712185F). (Alexandre Bilous, IRES)