Debate on lowering social security contributions is relaunched

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July 1998 saw the submission to the French Prime Minister, Lionel Jospin, of an expert report reviewing employers' social security contributions. The report does not support changing the base for calculating social security contributions, recommending that they be entirely pay-based. These proposals gained the approval of employers' organisations but were criticised by trade unions. The Minister for Employment and Solidarity is to consult with the social partners on this issue.

During summer 1998, a new report on employers' social security contributions relaunched the debate on restructuring the way in which social protection is funded. The "Malinvaud report" - named after the former director general of the National Institute of Statistics and Economic Studies (Institut National de la Statistique et des Etudes Economiques, INSEE),Edmond Malinvaud, engaged by the Prime Minister to compile the study - was submitted to Prime Minister Lionel Jospin on 16 July 1998. The report does not support including value added in the base for social security contribution calculations and recommends that employers' contributions be solely calculated on pay. It does, however, advocate a targeted "permanent" reduction in social security contributions for the lowest paid workers to promote job creation, though it does not indicate whether this reduction should be financed by increasing the tax burden on households - ie by either increasing the CSG (Contribution sociale généralisée) universal social contribution (FR9710170F) or value added tax (VAT) - or by raising social security contributions for the most highly paid.

Responses

The conclusions of the report, which are in line with the ideas supported by Martine Aubry, the Minister for Employment and Solidarity, were released to the press in early August, barely two weeks after the Minister for the Economy and Finance, Dominique Strauss-Kahn, announced a cut in the business tax (levied on all companies for the right to trade), particularly the portion calculated on the total company paybill. An alleged thinly veiled rivalry between the two ministers resurfaced around this report. The Minister for Employment wants to include new measures to reduce social security contributions in the social security finance bill due to be debated by Parliament in October, while the Minister for the Economy has indicated that reductions in taxation that have already been granted to companies leave little room for additional cuts in social security contributions in 1999.

While employers' organisations were satisfied with the conclusions drawn by the report, the trade unions reacted unanimously and strongly against it. Some of them, including the CFDT and the CGT, were disappointed to see that the report had rejected the idea of extending the base for social protection funding to include factors other than the paybill. The CGT-FO was less critical of this point, insofar as widening the base for contribution calculation would result in taxation being used as a way of funding welfare, an idea to which this union is entirely opposed. However, the proposed cut in contributions in respect of low-paid workers put forward in the Malinvaud report was widely criticised. All the unions expressed serious doubts as to whether this type of measure would be effective in creating new jobs. The CFDT questioned the notion that "cuts in contributions necessarily went hand in hand with job creation," while the CGT considered that the recommended lowering of contributions was based on "the debatable and disputed theory that labour costs are responsible for the high unemployment rate." The unions further criticised the proposed reductions, saying that by introducing a measure of progressiveness into the calculation of contributions, they could "push down all salaries" and "penalise skilled workers."

Both unions and employers' organisations considered the lack of consultation on such an important subject unacceptable. In light of these reactions, on 8 September, the Prime Minister instructed the Minister for Employment and Solidarity "to begin consultations on restructuring employers' contributions with all social partners, to examine the modifications that would most effectively meet the aims of job creation and social justice."

Commentary

The debate on employers' contributions is a recurring one in France. Since the social security system was set up in 1945, over 30 official reports have examined this issue. In the past few years, particular attention has been given to reductions in contributions for the low paid. The Malinvaud report does not put forward any innovative solutions on this point, since the present system already provides for reductions in contributions. Those were first introduced as a general measure by the Edouard Balladur government in 1993 and subsequently extended by Alain Juppé in 1996. Martine Aubry herself introduced contribution exemptions on part-time work as early as 1992. The main recommendation made by the Malinvaud report is to extend the wage band qualifying for reduced contributions so as to cover those people earning twice the minimum wage - around two-thirds of all workers. Currently, only workers are who earn less than 1.3 times the minimum wage (around 25% of workers) are eligible.

In fact, the majority of the Socialist leadership seem to share the idea that reduced social security contributions favour job creation. The Prime Minister himself, who referred to them as "rather ineffective" measures in January 1998, seems now to have taken this idea on board. The financial burden of implementing these general reductions is considerable (around FRF 50 billion), but all research indicates that the effects of cuts in contributions on job creation are limited. According to a recent study by the Ministry for Employment, 40,000 jobs were created in 1997 at a cost of FRF 40 billion. This has given rise to scepticism from the unions, which see these reductions as "a gift for employers." A paradoxical situation is emerging whereby a left-wing government which has made the reduction of the working week a cornerstone of its policies is in fact allocating more resources to reducing contributions, a policy which is most strongly advocated by the parties of the right, together with employers. (Pierre Concialdi, Ires)