The Union of Proximity Businesses (U2P), a French employers’ organization representing small and medium-sized enterprises, has unveiled a comprehensive proposal aimed at significantly boosting net incomes from work. The organization has termed its plan a "big bang," envisioning a radical overhaul of the current system through the elimination of the CSG-CRDS (social security contributions) and the introduction of alternative revenue streams derived from pensions, investment income, inheritance, and value-added tax (VAT).
The U2P’s initiative stems from growing concerns about the diminishing purchasing power of the French workforce. The organization highlights a troubling trend: for many individuals, holding a job no longer guarantees an improvement in their standard of living. The annual increase in purchasing power has been steadily declining, while the proportion of gross salary that translates into net pay has shrunk considerably. Currently, net salary represents only 54% of gross salary, a stark contrast to the 60% recorded in 1990 and the 69% observed in 1970.
In response to this concerning situation, the U2P advocates for a fundamental shift in the way France finances its social protection system, calling for a "better distribution of the financing of the social protection model among the French people." U2P President Michel Picon presented to the press a proposed law designed to completely abolish the CSG (Generalized Social Contribution) and the CRDS (Contribution for the Repayment of the Social Debt) on all earned income over a five-year period.
The organization characterizes this proposal as "pragmatic," emphasizing that all workers currently pay a uniform CSG-CRDS rate of 9.7%. According to the U2P’s calculations, the elimination of these contributions would inject an estimated 116 billion euros into the incomes of active workers, encompassing civil servants, the self-employed, professionals, and business owners.
The U2P projects that this measure, coupled with the growth in earned income witnessed over the past fifteen years, would result in a 22% increase in net pay for 28 million workers over five years. However, the organization recognizes the need to offset the financial impact of abolishing the CSG-CRDS. To this end, the U2P recommends that the government explore four distinct sources of revenue, with the specific weighting of each source to be determined.
The first source identified by the U2P is investment income and real estate income. The organization proposes a "slight increase" in the flat tax rate of 30% applied to financial income, as well as a "slight increase in CSG" on rental income. Additionally, the U2P suggests implementing a minimum income tax threshold for individuals with property income.
As a second revenue source, the U2P proposes freezing pensions exceeding 2,500 euros per month for a period of three to five years. The organization also suggests eliminating the 10% allowance currently granted on these pensions.
The third revenue source focuses on inheritance. The U2P proposes establishing a minimum inheritance tax rate of 10% to 20% on inheritances exceeding 500,000 euros per heir. Simultaneously, the organization suggests making the "Dutreil pact" on business transfers more attractive. Specifically, the exemption from inheritance tax would be increased from 75% to 90%, provided that the heirs commit to retaining the business for ten years instead of the current two-year requirement. This measure aims to encourage the long-term preservation of family-owned businesses.
Finally, the U2P proposes a revision of VAT rates. The organization suggests a "moderate increase of a few points" in the standard VAT rate, which would allow more products to be moved to the reduced rate. Additionally, the U2P proposes a substantial increase in the VAT rate on luxury goods, potentially reaching 35%.
The U2P’s proposal represents a bold attempt to address the issue of stagnant wages and declining purchasing power in France. The organization believes that its plan would provide a significant boost to the incomes of millions of workers, while also ensuring the long-term sustainability of the country’s social protection system. However, the U2P acknowledges that its proposal is likely to face significant opposition from various stakeholders.
The proposed tax increases on investment income, real estate income, and inheritance are likely to be met with resistance from those who would be directly affected. Similarly, the proposal to freeze pensions above a certain threshold is likely to be unpopular with retirees. The proposed changes to VAT rates could also have a significant impact on consumers and businesses.
Despite these potential challenges, the U2P remains optimistic that its proposal can gain traction. The organization believes that the growing frustration with stagnant wages and declining purchasing power will create a window of opportunity for bold reforms. The U2P also argues that its proposal is fair and equitable, as it seeks to distribute the burden of financing the social protection system more broadly.
Ultimately, the fate of the U2P’s proposal will depend on the willingness of the French government to consider radical changes to the current system. The organization has vowed to continue advocating for its plan in the coming months, and it hopes to engage in constructive dialogue with policymakers and other stakeholders.
The U2P’s initiative highlights the urgent need to address the issue of stagnant wages and declining purchasing power in France. The organization’s "big bang" proposal offers a comprehensive and potentially transformative solution, but it remains to be seen whether it will be embraced by the government and the French people.
