How France’s policy to boost purchasing power has left the poor behind

One week ahead of the French presidential election, President Emmanuel Macron argues he took all necessary measures to support low-income workers against soaring inflation. But an investigation by Sciences Po’s Journalism School found the French government’s policies to boost household purchasing power benefited everyone but the poor.

In a western suburb of Paris, Sofiane, 44, has worked as a supervisor at the Carrefour supermarket since 1999; for the past five years, he has been paid €1,806 a month, which he budgets for his most basic needs. Many of his lower-paid colleagues, though, confided that they could not afford to heat their home this winter, as the price of energy rose by 19.9% between January 2021 and 2022. “Honestly, if I was paid like them, I would do the same: no heating,” Sofiane said.

Sofiane has worked hard to reach that salary. Although his work contract provides for 43 working hours per week, he works overtime. “If I manage to work only 50 hours a week, I’m the happiest man in the world,” he said. Because he is often absent from home, his wife is the primary caregiver for their two children, even though she works part-time as a hostess at the same supermarket. In February, their energy bills were €280, almost half their rent. “I couldn’t cope if my wife was not working,” he complained.

In France, low-income workers from mass retail as well as from other sectors have faced similar struggles as salaries have not met the country’s soaring inflation rate. According to INSEE, France’s national statistics institute, consumer prices rose by 4.5% between March 2021 and 2022, an unprecedented increase in the 21st century. This led household purchasing power, the financial ability of families to buy products and services indexed to inflation, to become one of the major concerns of the French public for the presidential election, recent polls showed.

Yet the French government claimed it “did its part” to support France’s poorest families. “We have massively raised low incomes over the past five years,” said French Economy Minister Bruno Le Maire in a public address in January, before he listed two main government measures: a €5 billion cut in income taxes and the increase of employment bonuses.

I analyzed those measures and talked to workers and experts to verify whether they led to a significant increase in income for low-wage workers. I focused on mass retail and talked to employees working for Carrefour, France’s first private employer, which emerged as one of the largest profiteers during the health crisis: it is part of the only sector whose activity was never stopped as the successive lockdowns boosted food consumption.

I found that Le Maire’s proclamation that the government had “massively” raised low-income wages was overstated. Instead, I found that public policies have pushed the average purchasing power up but have failed to include the poor; measures targeting France’s poorest workers have brought them little relief and have normalized financial instability and poor working conditions; and low wages have failed to catch up with soaring inflation, even in the mass retail sector, which made record profits during the pandemic.

Everybody benefited from measures to boost purchasing power, except the poorest workers

Raul Sampognaro is an economist at the analysis and prediction department of the French Economic Observatory (OFCE), an independent and publicly funded economic research institute. He worked on a study released in late February whose results, at first glance, surprisingly contrast with the claims of many workers who recently protested for pay rises.

The study found that household purchasing power in France increased by 0.9% every year on average between 2017 and 2021. “The issue of purchasing power has reached a peak during Macron’s term,” Sampognaro said. “But what is surprising is that when we look at the numbers, Macron’s term marks a break with the two previous ones because purchasing power started to grow again.”

According to the OFCE study, this increase was first the consequence of employment growth, with more than one million jobs created since 2017. France’s unemployment rate decreased from 9.3% in the first quarter of 2017 to 7.2% in the last quarter of 2021. The second cause is the “significant tax cuts decided by Macron.”

During his first year in office, the French president removed the solidarity tax on wealth (known as the ISF) formerly paid by the wealthiest, a measure that earned him the nickname of “president of the rich.”

In 2019, Macron implemented another significant €5 billion cut in income taxes in reaction to the “yellow vest” protests. Sampognaro’s study found this measure mostly benefited households around the median standard of living.

“For those like us who have low wages, we don’t earn much fiscally, because we pay low taxes,” Sofiane said. The findings of Sampognaro’s study illustrate this reality. “The 5% wealthiest are the biggest profiteers of this term’s tax cuts. Then there are significant gains for the middle-class,” Sampognaro explained. “And there were really few earnings for the poorest because there were really few measures targeting them.”

Understanding the French income tax system

The French tax system provides for five tax rates on a household’s annual income.

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France’s five income tax rates, as of 2022.

The rates are progressive, meaning that they are applied on a fractional basis to each household’s “band” of their income. In 2019, the government reduced the second rate from 14% to 11%, which amounted to a €5 billion cut. 

Let us take the example of Sofiane, whose annual income amounts to €21,672. Sofiane doesn’t pay any taxes on the first band of his income, up until €10,225, and pays an 11% tax on the second band of his income, between €10,225 and €21,672. This amounts to €1,260 per year in income taxes. Before the 2019 reform, he used to pay a 14% tax on the second band of his income, which amounted to about €1,603. So, the reform allowed Sofiane to save €343 per year or €27 per month in income taxes, a sum everything but massive when compared to his rising bills.
The 2018 reform reduced the tax rate for the second band from 14% to 11% (French Public Service)

Financial instability and poor working conditions, the new normal

Christine, a representative for the CGT, France’s 2nd biggest workers union, will turn 60 in July. She has worked for the Carrefour shop in Bray-sur-Seine, in north-central France, for 32 years and still earns a monthly wage of €1,818. While one of the government’s measures widened the eligibility criteria for employment bonuses in 2018, Christine does not benefit. Although she does not earn much more than the French minimum legal wage (known as SMIC; it is worth €1,603 as of today), she explained that she still earns too much to benefit from the employment bonus.

The employment bonus is issued monthly at a fixed three-month rate to workers over 18. “It is a very complicated mechanism which takes into account many different parameters,” Sampognaro explained. It is calculated based on the income of all household members and their combined working hours. It also sets an income cap above which a worker cannot apply.

The 2018 reform increased that income cap to widen the number of beneficiaries. For example, a single individual without children had to earn less than €1,560 a month to be eligible for the bonus. With the reform, an individual in the same situation can now earn up to €1,806 and still be eligible. This led to an increase in the number of beneficiaries from 2,95 million households in December 2018 to 4,34 million households in September 2021, according to documents published by the Caisse des Allocations Familiales (CAF), the state welfare agency in charge of distributing the employment bonus.

But even after the reform, Christine explained that if some of her colleagues eligible for the employment bonus get other work bonuses, their income exceeds the cap set for the employment bonus. “This bonus targets people who have unstable incomes and increases their financial instability even more,” Sampognaro explained. “It is like a double penalty for them.” 

Christine agreed. “The criteria remain too narrow,” she said. The measure brings little relief to its beneficiaries and helps normalize precariousness and instability for low-income workers. 

Frozen salaries

In a Paris suburb, Zohra works as a manager in a Carrefour shop. Some of her colleagues, she said, slept in their car this winter because they could not afford both their rent and energy bills. “We were on the front line during the health crisis: we took all the risks,” she said. 

In February 2021, Carrefour CEO Alexandre Bombard announced a +7.8% growth in 2020, the company’s “best performance for more than 20 years.” But Zohra, who is also a representative for the CGT union, said “this money didn’t benefit the workers.”

At Carrefour, like in any other major company, mandatory negotiation sessions take place every year and typically lead to salary increases of 0.1% to 0.5%, according to Zohra. An agreement struck in February between Carrefour and three unions led to an exceptional 1.8% wage increase for 60% of the group’s employees. 

But for salaries around the SMIC (minimum wage) level, employees gain only a dozen euros per month, which hardly offsets their rising cost of living. “It is not a few cents or a few euros per month that will change your life,” Zohra complained. And with the rise of consumer prices being greater than this wage increase, Carrefour employees still lose purchasing power. For this reason, CGT, the workers union for which Zohra is a representative, refused to join the agreement with Carrefour. (The Carrefour group did not respond to interview requests.)

Instead, the CGT is asking for a minimal monthly wage of €1,800, a demand shared across various sectors. But there is little chance that employers meet that request if they are not constrained by a political decision.

The Ministry of Economy declined an interview for this article but directed me to an article published in November 2021 by Agnès Bénassy-Quéré, the chief economist of the French Treasury. However, the article does not elaborate on potential decisions to raise wages and focuses on the global household purchasing power increase to defend the government’s action.

The article also argues that “the impact of the rising energy prices has been mitigated by various measures targeting low-income households.” The measures it refers to are the chèque énergie (energy cheque) and the indemnité inflation (inflation benefit), two exceptional €100 benefits distributed recently to millions of households in reaction to the surge in consumer prices.

Sampognaro explained that although these benefits cost the government up to €5 billion, they did not offset the recent price shock. “The indemnité inflation has enabled the 10% poorest to maintain their average income,” he said. But Sampognaro explained that “30% of this 10% have not been compensated at the level of their new expenses caused by the prices’ rise.”

So what should the government do?

Macron’s economic policy has focused on reducing the cost of work to boost employment, which is a good strategy, according to Jerome Mathis, an economist at Paris-Dauphine University. “In France, the poorest are not those who are not paid enough at work, but those who can’t access employment,” he said. “If we really want to tackle the issue of poverty in France, we must address the unemployment issue first.”

But this strategy takes time before it bears fruit, and in the meantime, a significant portion of the French public faces an emergency: they earn low wages and are particularly sensitive to France’s historic inflation. This is the population group the French government has left behind. 

The temporary measures taken by the government to respond to that emergency, although expensive for the state, were insufficient, according to the OFCE study. Sampognaro suggests instead a price blockage through “domestic agents”, companies paid by the government to buy energy at market price and resell them to the French public at prices set by the state. This would allow the French state to set its own cap on the prices the population would pay for energy.

Several candidates for the French presidential election, like left-winger Jean-Luc Mélenchon, who came third in the first round of the election, were advocating for a similar measure. But neither President Macron nor Marine Le Pen, France’s main far-right party leader, who will face each other in the second round of the election, are. 

In a Paris meeting on 3 April 2022, the French president promised a potential tax-free bonus of up to €6,000 targeting working people if he was reelected. A proposal that will not reassure Mathis, who accuses Macron of economic “electoralism”, by offering a bit of money to every category of the French public to attract their votes. “When we hear of the famous ‘Macron benefits’, it makes us laugh,” Zohra said. “We feel like we are being offered crumbs.”

Article by Arthur DIDIER DEREN

Header image: © Pixabay

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