The VAT reduction measures promised by Marine Le Pen would be very costly for the state budget and their effect on purchasing power would be more modest than expected.
The VAT reduction is: one of the key measures of the programme of Marine Le Pen for purchasing power. The National Rally candidate, if elected, would immediately reduce VAT on a hundred basic necessities (salt, paste, oil, diapers, etc.).
“I will remove VAT as long as inflation is 1 point above growth, she told BFMTV, targeting products affected by ‘very high inflation’.
A measure that would be combined with another reduction in the VAT on energy this time that the candidate wants to reduce to 5.5% instead of the current 20%. Marine Le Pen wants to bring fuel, gas, heating oil and electricity among the basic necessities of life.
What would be the wallet impact of abolishing VAT on these hundreds of food products? In a note, the company Asterès estimates it would be lower than the candidate’s estimates
Restorers have recorded the decline
“If the VAT shift from 5.5% to 0% had an integral effect on prices, it would result in a profit of 133 euros for French households, or an increase in purchasing power of 0.3%, the economic research firm acknowledges. historical experience shows that a small proportion of VAT reductions are passed on in prices, with the majority collected by businesses or their employees VAT on catering in 2009 Asterès estimates that 10% of this reduction will actually benefit consumers ie a gain in purchasing power of 13 euros or 0.03% per household.
The company refers here to the reduction to 5.5% of VAT on catering that was decided in 2009. According to a study by the Institute of Public Policy (IPP), prices in catering had fallen by 1.4% the first time before reaching 1.9%. months after the reform and a call to order of the state. In other words, more than 90% of the VAT reduction was not passed on in the prices. The big winners of this reform were the restaurant owners, who got 56% of the profit back.
A profit of 13 euros per year would therefore be modest given the amounts involved. The company Asterès estimates it at 3.8 billion euros. An amount that the candidate intends to fund, in particular a 33% tax on financial transactions.
This measure would primarily target all French people: the modest who are suffering from the return of inflation, as well as the wealthy who can afford to pay a little more for their races. And if the gains were stronger in percentage terms for the most modest (between +0.07% and +0.05% of purchasing power for the first three deciles), then in value it would be the wealthy households that would gain the most because they are the ones who spend the most.
For example, Asterès estimates the profit for the poorest 30% of the French at 10 euros per year on average, compared to 17 euros for the richest.
“Direct aid to low-income households would be more relevant than a VAT reduction, the cabinet estimates. If this amount[ofEUR38billion)werepaiddirectlytothe10%ofthepooresthouseholdsthishouseholdwouldhaveanadvantageinpurchasingpowerofmorethan10%[the38milliardsd’euros)étaitmédesultdesesendenes”plusdesplusdesedeseneauxinthe”[van38miljardeuro)rechtstreeksaande10%vandearmstehuishoudenszouwordenbetaaldzoudendezehuishoudenseenvoordeelhebbenkoopkrachtvanmeerdan10%[de38milliardsd’euros)étaitdirectementverséeaux10%desménageslesplusmodestesilenrésulteraitpourcesménagesungaindepouvoird’achatdeplusde10%”
What about the VAT reduction from 20 to 5.5% on energy? Beyond the feasibility of a such a measure under European ruleswhat would the purchasing power gain be?
28 euros in the best case
According to a study by Terra Nova, this measure, which would cost 10 billion euros to public finances, would already yield more than the reduction in VAT on basic needs. About 28 euros per month according to the think tank.
“French households spend an average of 1,540 euros annually on fuel to get around (including 246 euros VAT) and 1,602 euros for their accommodation (including 224 euros VAT), Terra Nova recalls. figures from the Ministry of Ecological Transition† At the level of consumption and prices for 2019, a decrease from 20% to 5.5% VAT should therefore result in a saving of 341 euros per year per household (ie 28 euros per month).
Except that with regard to the VAT on food products, this calculation assumes that 100% of the VAT reduction would be passed on in the final prices. If companies in the sector passed on only 50% of the decline (ie five times more than the restaurant sector in 2009), the profit would average 14 euros per month. An amount that would obviously be much higher for owners of SUVs and large houses and lower for modest French people.
A costly measure with modest effects that would deprive the State of the means to invest in the energy transition by subsidizing fossil fuels.
“The transition from VAT from 20% to 5.5% on energy would nevertheless lead to an increase in the consumption of households, due to their individual travel or their heating, estimates the Institut Montaigne the cost calculation of candidate measures† It can be estimated that this measure, apart from the others, would delay the achievement of the national low-carbon strategy (SNBC) carbon budgets for the transport and construction sectors by about two years, while the state budget would lose capacity financing while limiting climate investment. by 14 billion euros per year in order to achieve the objectives of the SNBC.
*Edit. In a first version of the article, the amount of 13 euros per month was mistakenly indicated, while it is 13 euros per year.
