By Gérard Fonouni-Farde, professor emeritus of economics
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With a budget deficit of 5.4% of GDP and a public debt of 115% of GDP, our redistribution system will have great difficulty reducing income disparities that appear to be worsening. Our redistribution system as it is currently organized in France, consists of taking annually from taxes and social contributions almost 43% of the national wealth created, that is, all primary income paid in return for production, to then be redistributed in the form of monetary benefits or public services (schools, health, security, etc.).
In the context of this deficit, our redistribution system could weaken as the gap widens further in 2025.
Widening inequality in the context of uncertain budgets…
These figures prove that the richest half of households own 92% of the assets (real estate capital and financial capital). The other half shares the remainder, resulting in a total of 8%. To be part of the wealthiest 10% of households, you would need to have gross assets of more than 716,300 euros in 2021, while half of households would have to make do with less than 177,200 euros. Incomes of ultra-wealthy households have risen rapidly according to records from Bercy. In fact, within twenty years their income had more than doubled. The richest 0.1% of the population, consisting of professional footballers, shareholders, entrepreneurs, managers of very large companies, especially those in the CAC 40, etc., earn on average 167 times more than the poorest quarter of households according to INSEE. In addition, the inter-decile ratio, namely the ratio between the richest 10% of the population and the poorest 10% of the population, increased from 6.37 in 2020 to 7.31 in 2023. Therefore, the poorest households became poorer and the richest households became richer. The Gini Index, an indicator between 0 and 1, which measures income inequality, confirms this trend. The closer it is to 0, the closer it is to income equality, conversely, the closer it is to 1, the greater the income inequality. For our economy, the figure increased from 0.284 in 2020 to 0.297 in 2023. Thus, the figure has increased slightly, which is a sign of a more or less uneven distribution of income. However, a redistribution system based on social solidarity is able to reduce this gap thanks to its redistribution effect.
Before redistribution, the richest households had incomes 18 times higher than the least well-off households. After redistribution, the gap is 3. However, the income gap before redistribution is so large that it drains all the resources of our system.
…but gaps that can be reduced without increasing the public deficit
In a bleak and highly uncertain budget situation, this system will be too expensive in terms of collections and too generous in terms of social spending. In the eyes of certain economists and some political circles, a reduction in government spending accompanied by a series of taxes is necessary to consolidate state finances, but this risks jeopardizing the redistribution model and therefore risks further exacerbating inequality. This is why better distribution of the tax base rather than multiple taxation seems necessary to strengthen vertical redistribution. Strengthen it through increasing progressive taxes on income from financial assets so that beneficiaries return to self-employment. This will increase growth and employment and allow for increases in taxes and social income of the country without harming business profitability. In addition, it is very important to condition and control the public assistance and social exemptions provided to companies so that they are truly beneficial to our economy, and then generate increased social income due to increased production.
Finally, primary income inequality, namely income before redistribution, needs to be prioritized to be reduced by implementing social regulations in the formation of this income, either by indexing wages below the median wage to prices, or by indexing wages to the level of profit. Thus, this social regulation will reduce the income gap between the richest and poorest groups. This would also increase overall primary income and make redistribution cheaper and more effective. The country, for its part, will experience an increase in tax and social revenues due to an increase in primary income, thereby preventing the country from widening the deficit and planning a reduction in public spending. In conditions like these, social justice and economic efficiency will once again complement each other and our redistribution system will be able to answer the challenges of inequality in the context of an uncertain budget. We still need to form the national political will to achieve this!
Gérard Fonouni-Farde is professor emeritus of economics. He is primarily the author of The Economy in Four Lessons, published by L’Harmattan in 2022.
