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The Second Round of France’s Presidential Election: 4 Key Points in Emmanuel Macron and Marine Le Pen’s Campaigns 

Analysis - 20 April 2022

By Institut Montaigne

As in 2017, Emmanuel Macron and Marine Le Pen will face each other in the second round of the presidential election on Sunday, April 24. While the finalists are the same, the policy priorities outlined in their campaigns have evolved. As part of its mission to decipher France’s 2022 presidential election, Institut Montaigne has created a quantitative and qualitative overview of the 4 key proposals of each candidate’s program. This is not, of course, an exhaustive list. A comprehensive overview of decryptions can be found on the Presidential 2022 website

Emmanuel Macron: Purchasing Power, Activity Income, Production Taxes and Energy Transition 

According to our experts, the overall cost of Emmanuel Macron's program is estimated at 44.5 billion euros annually for public finances. Among all the measures making up his electoral project, some were especially publicized during his campaign, and may be seen to constitute the key pillars of his program. As in every presidential election, the subject of pensions has dominated public debate. Within this context, Macron is advocating a postponement of the retirement age to 65. The presidential candidate also intends to reinforce the policies already established during his first five-year term, including purchasing power, production taxes, and the energy transition

1.Tripling the ceiling of the purchasing power bonus

Emmanuel Macron is proposing to triple the exceptional purchasing power bonus established during the Covid-19 crisis.

Emmanuel Macron is proposing to triple the exceptional purchasing power bonus established during the Covid-19 crisis. This bonus could therefore amount to €3,000 instead of the current €1,000. The proposed measure is likely to increase the purchasing power of the employees concerned, with positive effects on economic activity. On the employers' side, we can expect a massive recourse on this bonus, as was the case when it was introduced in 2019. The bonus is exempt from social security and tax charges and is therefore advantageous: it could, in certain cases, replace salaries or other forms of remuneration.

Nevertheless, as households have accumulated significant financial savings during the health crisis, the net effect on consumption could be small in the short term. The loss of revenue for public finances therefore raises questions about its financing, particularly with regard to the social security deductions from which this bonus is exempt. In addition, the total cost of this measure could further increase as a result of inflation and pressure on company margins, which would push employers and employees to use the scheme to a point of saturation. 

According to Institut Montaigne, tripling the ceiling of this bonus would amount to a cost of 6 billion euros per year for public finances.

2.Turning the Active Solidarity Income (RSA) an activity-based income

In France, the active solidarity income (RSA) provides a minimum income for those who do not work, while also being a social and professional support system to facilitate access to employment for those who are not working. Emmanuel Macron is planning to reform the RSA, transforming it into an activity income. Its allowance would be conditional to 15 to 20 hours of activity, training or employment, per week. This compulsory activity aims to encourage professional integration by offering a more inclusive return to work through a personalized assessment, immersion in a company, or professional training. 

This reform would lead to an increase in integration expenditure, despite a degree of uncertainty about the actual cost of this measure, which will vary according to the number of recipients concerned. In an optimistic scenario, the reform is likely to reduce the unemployment rate, although this effect will probably take time to manifest itself. In the long run, the increase in employment rate would contribute positively to consumption and growth, as well as to the balance of public accounts. In a less favorable scenario, if the conditions for receiving the RSA cause eligible people to give it up, the measure could contribute to increasing the poverty rate.

As it stands, Institut Montaigne has therefore estimated the cost of this measure to be around 2 billion euros per year.

3.Lowering production taxes by abolishing the Company Value Added Contribution (CVAE) 

In order to strengthen the competitiveness of French companies, Macron plans to continue the reduction of production taxes begun in his previous five-year term, by abolishing the Company Value Added Contribution (CVAE). 

As part of the France Relance plan, 10 billion euros of production tax have already been cut, by reducing the Business Property Tax (CFE) by half, as well as the Property Tax on Built-Up Properties (TFPB), and the Business Value Added Tax (CVAE). The objective is to make France more competitive with its European neighbors such as Germany, the United Kingdom and Italy, where production taxes represent respectively 0.7%, 1.1% and 1.3% of GDP, compared to 4.4% in France in 2020, an observation that was already made in our 2022 European Production Tax Barometer.

The objective is to make France more competitive with its European neighbors such as Germany, the United Kingdom and Italy.

The abolition of the CVAE would lead, among other things, to additional expenses for the State related to (1) the full compensation of the loss of revenue previously paid by the State to local authorities, (2) a loss of revenue corresponding to the disappearance of the CVAE revenue, and (3) savings resulting in particular from an increase in corporate tax revenue. The macroeconomic impact would be positive for companies, as their profitability would be improved.

According to the calculations of Institut Montaigne, this measure would represent a total cost of 7.44 billion euros.

4.Accelerating the energy transition: nuclear, offshore wind and solar energy 

The outgoing president has made France’s energy independence one of the key priorities of his next five-year term. He proposes the construction of 6 new nuclear reactors, as well as the implementation of 50 offshore wind farms by 2050, and the multiplication of solar power by 10. This represents a major difference from the program he presented in 2017, which focused on reducing the share of nuclear power to 50% of the French energy mix.

His proposed program - constructing 6 EPRs (European Pressurized Reactor), as well as evaluating the possibility of 8 additional projects - is expected to be implemented in the near future. However, the candidate's target share of renewable energy differs from this scenario. Macron has announced a lower share of onshore wind power, two thirds of which will be compensated for by solar power, and one third by offshore wind power. However, if, until 2035, France relies only on EPRs for new nuclear power rather than planning small SMR-type reactors, there will be an estimated additional cost of 2 billion euros per year by 2050.

Institut Montaigne therefore estimates that the cost of this measure will amount to 2 billion euros per year by 2050.

Marine Le Pen, the candidate for protection: security, purchasing power, economic protectionism

Marine Le Pen presents herself as the candidate promoting the security and protection of the French: specifically, she focuses on social security, economic security and national security and identity. She aims to defend purchasing power and advocates national priority and economic protectionism to safeguard jobs and re-industrialize the country. Finally, she is the candidate in support of national security: drastic reduction of immigration, reinforcement of the means allocated to justice and law enforcement. Four particularly high-profile proposals illustrate this dynamic. 

1.Exempt all young people under 30 from income tax

Marine Le Pen proposes to exempt all young people under the age of 30 from income tax. She hereby intends to convince young people to settle in France and consider their professional future there. According to our calculations, the gain in purchasing power, with a constant tax framework, would reach an average of €374 per year for each taxpayer concerned, i.e. for all young people under 30 without exception. 

By proposing to exempt all taxpayers under 30 from income tax, [...] this measure tends to create unjustified differences in treatment with the rest of the working population. 

However, this measure involves issues with regard to its feasibility and constitutional implementation. By proposing to exempt all taxpayers under 30 from income tax, regardless of their status and resources, this measure tends to create unjustified differences in treatment with the rest of the working population. The Constitutional Council has, on several occasions, recalled that Le Pen’s tax proposal would breach the principle of equality stated in Article 13 of the Declaration of the Rights of Man and of the Citizen. This measure could therefore be inapplicable as it stands and would undoubtedly require a revision of the Constitution. 

Institut Montaigne has estimated the cost of this measure to be at 3.7 billion euros per year, compared to an estimated 2 billion euros per year by the candidate's team

2.Encouraging companies to increase salaries

It’s always a question of purchasing power: the candidate of the RN wants to encourage companies to increase wages by 10% (up to 3 Smic - the French minimum wage, also called SMIC, represents the minimum amount per hour or per month that employers have to legally pay their employees, 1 554,58 € per month, for a contract of 35 hours per week) by exempting them from employer contributions. This measure concerns current as well as new employees, based on the historical salaries provided by the company. The macroeconomic effects would be limited in the short term. On the one hand, the measure would not lead to wage increases significantly higher than those already anticipated by companies, which could thus benefit from a windfall effect. On the other hand, it would take place in a context of abundant household savings, so that the support provided to consumption would be limited. Moreover, companies will have abundant cash resources in 2022. Nevertheless, in the longer term, the measure would lead to an increase in wages and margins, which could support economic activity, albeit to an uncertain extent.

The candidate believes that this measure will have no impact on public finances, while the Institut Montaigne estimates its annual gross revenue loss at 10.5 billion euros.

3.Lowering VAT on fuel, electricity, gas and heating oil

VAT on oil products, gas and electricity represents 14.5 billion euros of revenue for public finances. Most of these energy products are subject to a 20% VAT rate. Therefore, applying the reduced VAT rate (5.5%) would represent a very significant drop in public revenues. The VAT yield would fall by around 10 billion euros to between 4 and 5 billion euros. 
    
This measure represents a loss of revenue of 10.3 billion euros for public finances and would have a negative impact on the environment by increasing CO2 emissions, with the risk of making France deviate from its objectives in the fight against global warming.

4.Reserving the Active Solidarity Income (RSA) and solidarity benefits for foreigners who have worked in France for at least 5 years 

Marine Le Pen has presented a program whose financing is largely based on a drastic reduction in immigration and the principle of national priority. In particular, this concerns mechanisms for financial aid such as the Active Solidarity Income (RSA). She wants to not only reduce the number of immigrants who have access to the RSA, but also to solidarity benefits, reserving these for those who have worked in France for at least 5 year. 

Marine Le Pen has presented a program whose financing is largely based on a drastic reduction in immigration and the principle of national priority.

The implementation of this measure would be of great legal, political and diplomatic complexity. This proposal is contrary to the principles of equal treatment between nationals and foreigners with regard to social rights, as enshrined by the Constitutional Council and several international documents such as the European Convention for the Protection of Human Rights and Fundamental Freedoms. For this reason, the candidate is considering submitting a bill combining constitutional and legislative provisions for a referendum. Faced with the risk of litigation, it also appears that the application of this measure would require the denunciation of international conventions with a strong political and diplomatic impact, and a potential condemnation of France by the European judge.

Institut Montaigne has estimated the potential savings that such a measure would generate at 2.5 billion euros per year. The campaign team's estimate is more optimistic and puts the savings at 5.4 billion euros

 


Copyright: Charly TRIBALLEAU / AFP

 

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