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

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). 

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. 

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 

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