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French Presidential Election - The candidates and budgetary / fiscal policies: what is at stake

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The essential

This note discussing the budgetary policies of the five main candidates running for French president is the fourth in a series that will accompany you until the results of the presidential and legislative elections (and probably a little further).


Global Head of Research, Strategy and Analysis

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This article discusses the budgetary policies of the five main candidates running for French president: François Fillon (The Republicans, conservative right), Emmanuel Macron (“En marche !” [“On The Move”], moderate centre-left), Benoît Hamon (Socialist Party), Marine Le Pen (National Front, far right) and Jean-Luc Mélenchon (“Unsubmissive France” movement). It goes without saying that the differences between the platforms are very sharp as the candidates are not pursuing the same objectives (big spending vs. budgetary rigour) or targeting the same audiences (households vs. corporations). They are also coming from different perspectives: some want to leave the European Union, others want to ease European constraints and still others want to preserve or strengthen the current European system.



I – The candidates’ budgetary platforms: an overview

François Fillon

Fillon proposes “liberal austerity” that combines reducing public expenditures, except for sovereign government functions, with tax breaks, first for businesses and then for wealthy and middle-income households. Public expenditure, which now accounts for 57% of GDP, would be reduced to less than 50% by 2019. The budgetary deficit would reach 3.7% at the end of 2017 and fall below 3% by 2019.

Fillon proposes the following savings and sources of revenue over a five-year period:

  • €100bn in public expenditure savings, including cutting 500,000 civil service jobs and returning to the 39-hour work week (€15bn).
  • €50bn in social security savings: €20bn by raising the retirement age to 65, €20bn through cuts to healthcare (including by reforming hospital services) and €10bn in cuts to unemployment benefits (introduction of a “degressivity” system).
  • Increasing the standard and intermediate VAT rates by 2 percentage points in 2017.
  • Taxing capital income at 30%.

Spending plans over the five-year period:

  • A €40bn reduction in expenses for businesses, including lowering the corporate income tax rate to 25% and reallocating the CICE (Competitiveness and Jobs Tax Credit) by reducing employers’ social security contributions.
  • A €10bn reduction in social security taxes and tax relief for households, including raising the family allowance by €2.9bn, eliminating health insurance contributions (€5.5bn), reducing inheritance taxes by €0.7bn and restoring universal child benefits (€0.8bn).
  • Abolishing the ISF (Solidarity Tax on Wealth) at an estimated cost of €5.5bn.
  • €12bn in additional spending on national security, defence and law enforcement.

Emmanuel Macron

His platform consists in reducing labour taxation, raising the tax on income from movable capital and launching a public investment programme in digital technology, transportation and renewable energy to rekindle private sector employment. He would also cut public spending by reducing the number of civil servants. The goal would be to keep the budget deficit below 3% over the full five-year term and to reduce the unemployment rate to 7% by the end of his term.

Macron proposes the following savings and sources of revenue over the five-year period:

  • Eliminating 120,000 civil service jobs: 50,000 national civil service jobs and 70,000 local civil service jobs (mainly in metropolitan areas).
  • €60bn in savings on public expenditure per year until the end of his five-year term: €25bn in government operating costs, €15bn in health insurance (including by encouraging price competition), €10bn in unemployment insurance  and €10bn in regional authorities costs.
  • Broadening the tax base of the CSG (General Social Contribution): working population, retired persons and income from investments.
  • Increasing the CSG based on income by a minimum of 1.7 points except for the unemployed and persons with small pensions.
  • A single fixed levy of 30% on investments income, CSG included.
  • An increase in the carbon tax.

Spending plans over the five-year period:

  • Public investment of €50bn: €15bn for the energy transition, €15bn for occupational training, €5bn for healthcare, €5bn for agriculture, €5bn for modernising government bodies and €5bn for transportation and public infrastructure.
  • Reducing statutory contributions by €20bn:

- for businesses: reducing the corporate income tax to 25%, broadening the CICE (Competitiveness and Jobs Tax Credit) to business ventures and tax relief;

- for households: lowering social levies on wages, raising the work related activity premium by 50%, eliminating the SMIC (growth-indexed minimum wage) related taxes and overtime, raising the disability adult allowance and the minimum old-age pension, eliminating the ISF (Solidarity Tax on Wealth) in its current form and replacing it with a tax on real estate assets and an exemption from the housing tax for 80% of French households (€10bn).

  • Creation of 5,000 jobs in education and 10,000 jobs in law enforcement.

Benoît Hamon

Hamon proposes a stimulus plan focusing on wages, hiring and investment by raising public spending and increasing redistribution. So far there are no figures as the increase in universal minimum income has yet to be defined  and because some measures must be taken at the European level: a €1tn energy investment plan, the harmonisation of the corporate income tax, a cap on the VAT (value-added tax) and a tax on the web giants 1 . There is no commitment to keep the budget deficit under 3% as calculated today. Instead, there is a desire to remove financing linked to public investment from the calculation of the budget deficit as well as defence spending.

Savings and sources of revenue over the five-year period:

  • Merging the personal income tax and the CSG, and combining the ISF with the property tax. The merger of the personal income tax with the CSG has been  almost abandoned consecutively to the modifications brought into the universal income proposal.
  • Enhancing the progressivity of this new tax by increasing the number of brackets for an estimated gain of €19bn, as projected by the Institut Montaigne think tank.
  • Eliminating the RSA (earned income supplement), the special solidarity allowance, the work activity premium and housing assistance (in exchange for universal minimum income).
  • Instituting a tax on the web giants and combating tax evasion with Europe-wide cooperation.

These measures would reap a total of €35bn to €79bn depending on whether other family allowances and the dependants’ allowance are eliminated.

Spending plans over the five-year period:

  • Universal minimum income of €600 per month in 2018, potentially increased to €750 in the future. This key measure was amended or précised and would probably be again, in its agenda (for the young first), its perimeter (above 1,9 SMIC and minus the already affected allowances), its financing method or its amount (it would represent 200€ more for an employee paid the SMIC 2 ).
  • The estimated cost (according to Institut Montaigne) would be between €38bn and €45bn in 2018, and then between €260bn and €350bn per year, depending on whether it is limited to wages of less than €2,000 per month.
  • A 10% adjustment to one of the multiplier points of the public service wage-based price index with an estimated impact of €2bn per year on national education.
  • 38,000 additional jobs in national education, a 25% increase in the assistance budget for out-of-school child care and an increase the university budget are measures projected to cost €1bn per year.
  • 1% of GDP for culture.
  • A plan to invest in energy retrofitting and assistance to households for renewable energy equipment, including by applying for a €1tn European investment programme.
  • European harmonisation in the area of corporate income tax, estimated to cost €7.5bn.

Jean-Luc Mélenchon

Mélenchon is running on a platform that includes a recovery package launched at the beginning of his five-year term aimed at triggering a five-year virtuous growth cycle which, with imposing higher taxes on the wealthiest households, would generate needed revenue. According to this plan, the government deficit would amount to 4.8% in 2018 and 2.5% in 2022.

Savings and revenues over his five-year term would be derived from various sources:

  • €190bn in revenue generated for the State through growth of 2% in 2018, the lowering of the unemployment rate to 6% and higher inflation (4%).
  • Progressivity of the CSG at a marginal rate of 90% in the highest income tax bracket (above €400k).

Spending plans over the five-year period:

  • Investment of €102bn at the beginning of his five-year term financed by borrowing, including €45bn for emergency social relief (€18bn for housing), €50bn for environmental emergency assistance (one-half for the development of renewable energy) and €7bn for utilities.
  • €173bn for wage growth and reducing unemployment, with the State providing work to the unemployed who have exhausted their benefits.
  • Lowering the corporate income tax to 25%.

Marine Le Pen

 Le Pen's platform includes a plan to restore budget sovereignty and the launch of a recovery package aimed at reaching a 2% growth rate by 2018. The National Front recognises that this would likely worsen the public deficit, at least at the beginning of her five-year term. However, it should be restored to 1.3% of GDP in 2020. An accurate estimate is hard to make since her platform relies on (i) the reinstitution of the national currency, which would be immediately devalued and would increase the cost of borrowing, (ii) a likely exit from the EU and (iii) a halt to immigration. Additional taxes would be introduced, such as a tax on hiring foreigners or a 3% welfare tax on the import of goods and services, among others.

Savings and sources of revenue over the five-year period:

  • According to the FN statements, €60bn would be earned from the administration of social security, combating welfare fraud and tax evasion, exiting the European Union (€7bn per year for a total of €35bn), halting immigration (€41bn) and pursuing institutional reform and crime measures.

Spending over her five-year term would include:

  • €40bn for households, consisting of €20bn in tax cuts and €20bn in measures to boost purchasing power (increase of one index point for civil servants, assistance to the disabled, old age minimum income, a bonus of €80 for salaries of less than €1,500 and persons with small pensions).
  •  An increase in defence spending to 2% of GDP in 2017, trending toward 3% by the end of her five-year presidential term (recruitment of 50,000 military personnel and equipment purchases), which would represent a minimum of €60bn on a 2016 GDP basis.
  •  Hiring 15,000 additional police officers and gendarmes and 6,000 customs agents.
  •  A 33% reduction in the tax rate paid by SMEs, which currently stands at 24%.
  •  Perpetuation of the Competitiveness and Jobs Tax Credit (CICE) by reducing expenses to ensure job retention.
  •  A 30% increase in public spending on research, raising it to 1% of GDP.
  •  A 25% increase in the heritage preservation budget.

II - The main budgetary policy hurdles facing the presidential candidates

François Fillon

The cost saving measures in civil service jobs will probably be implemented gradually through attrition and through the non-renewal of temporary contracts. It will therefore take time. The raising of the retirement age will slow any savings to be gained from job cuts. Furthermore, such a measure would require negotiations with workers’ representatives, as would the return to a 39-hour work week. It is more likely that part of the restoration of the 39-hour work week would be achieved through additional pay, which has not been quantified.

Emmanuel Macron

There is significant resistance to the reduction in the number of elected offices. The regional reform implemented during François Hollande’s five-year term aimed at reducing this number fell short of achieving its goal.

The CICE currently functions in the form of a tax credit, and shifting it by reducing expenses implies a doubling of costs the first year, which has not been factored in.

The savings on unemployment insurance from the renationalisation and disappearance of the National Professional Union for Employment in Industry and Trade (Unédic), estimated to be €10bn per year at the end of the five-year term (initially €15bn), have generated substantial controversy. This measure goes hand-in-hand with the institution of universal unemployment insurance, to be financed by increasing the CSG.

Benoît Hamon

Universal minimum income would be prohibitively expensive and would result either in a substantial increase in the deficit or in a heavier tax burden, and most likely both. The presidential candidate has already started to modify his proposal. It would require negotiations at the European level, as would the tax harmonisation proposal and the €1tn capital investment programme in renewable energy.

Jean-Luc Mélenchon

Estimating the growth generated by the stimulus package is a challenge.

The deficit will likely be questioned at the European level, which Jean-Luc Mélenchon does not deny.

Exiting the EU cannot be ruled out as a further option (Jean-Luc Mélenchon is fond of saying that Europe has to change or France is out), and this makes estimating a futile exercise.

Marine Le Pen

The costs of the considerable increases proposed to security and defence spending have not been estimated; nor has the more crucial estimate of the cost of exiting the EU.

According to estimates by Marine Le Pen’ National Front, the new immigration policy would save €41 billion over five years, but this figure is particularly disputed. Several studies have shown that immigration actually reduces the tax impact of the aging population and meets labour market needs, with a positive overall economic and financial impact for the French economy.


2017-03-27- france financial

1 Google, Apple, Facebook and Amazon (“GAFA”), in reference to the virtual economy

2 SMIC represents 1 153 € net wages a month to date


LETORT Valérie , Fixed Income Strategy
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