Workers set to benefit in social charge reform plan
One of the more controversial proposals of President Emmanuel Macron is raising the social charge the Contribution sociale généralisée (CSG) by 1.7% as part of a redistribution of charges aimed at benefitting, in the main, people in work.
The measure is expected to come at the expense of retirees (but not those with the smallest pensions) and those receiving income from rents.
CSG (see column right) is – as its name suggests (‘generalised contribution’) – levied on all kinds of income, apart from certain social benefits such as family allowance or RSA income support.
This ‘flat tax’ (it does not rise in bands like income tax) was introduced in 1990 at a mere 1.1% and has since periodically increased.
The plan is to increase it on most kinds of income, though not small pensions or unemployment benefit, with the proceeds going to compensate for a linked plan to end the employee’s part of cotisations sociales for healthcare and unemployment for private sector workers. As a result, claims the En Marche! (Macron’s party’s) website, “social protection will no longer weigh so heavily on salaries, and will be financed in a fairer way”.
The main beneficiaries would be private sector workers: for a person on the Smic, removing the health and unemployment part of the charges (respectively 0.75% and 2.4%) would mean a gain of around €46 per month, while the additional CSG would represent just €25 less, meaning a net gain of €21, or just over €250 a year.
Up to a certain very high level (there are maximum income ceilings beyond which no unemployment cotisations are payable) the amount saved would increase as salaries increase. However for the lowest-paid workers it is proposed that the measure would also be boosted by a 50% increase to the prime d’activité benefit.
A way of compensating for the increased CSG is being worked out for public sector workers and the self-employed, for whom the measures would not be so beneficial. Self-employed workers do not pay unemployment cotisations and fonctionnaires do not pay them for health and only pay a reduced rate for unemployment.
The losers would include retirees who pay full-rate CSG (eg. single people with annual pension income of more than €14,375) and people on very high salaries (more than €156,912/year). People who receive capital incomes may also lose out – probably not interest and dividends for which a new fixed rate levy is planned, but, notably, income from renting out property. However a government spokesman said plans to remove taxe d’habitation would help balance out the effect.
The plans are yet to be approved by MPs and may also pass to the Senate.
What is the CSG?
Contribution sociale généralisée (CSG) is a tax that helps finance the social security system. It is levied on salaries and bonuses at 7.5%, pensions and unemployment benefit at 6.6% (3.8% for those on low incomes), property and investment income at 8.2% and certain kinds of gambling at 9.5%.
The government refers to it as a tax – which makes sense because unlike the cotisations sociales that workers pay towards healthcare, family allowance etc, no direct benefit is gained by the payer. However it is a grey area because it is also considered (and often called) a kind of ‘social charge’, a view which was confirmed in the 2015 De Ruyter case in the European Court.
This said residents of other EU countries owning properties in France, and others who are not ‘affiliated’ to the French social security system such as British retirees who have never worked in France and whose healthcare is paid for by the UK, should not have to pay CSG (or some other similar charges). This is because Europeans should not have to be affiliated to, or pay into, more than one social security system.
This resulted in the possibility of refunds of charges that had been paid on property and investment incomes by these groups since 2012, when France started making the charges on non-residents.
However, as of 2016, France is levying the charges on everyone again, having changed the way that the CSG on property and investment income is used. It now goes to the Fonds de solidarité vieillesse, which funds the Aspa pension top-up benefit for low-income pensioners, a non-contributory benefit for which you do not need to be ‘affiliated’ to social security.