Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

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The French social model challenged by the debt crisis

In 2009, 31.3% of the French GDP has been spent on welfare payments. Those include spending by the State-managed health care system, unemployment benefits and social benefits. The government agency in charge of those payments has tripled its deficits during the past 3 years reaching a record 28 billion € in 2010. The annual amount of welfare payments reached 597,5 billion € in 2009, which is largely superior to the whole amount of the Greek debt (€328 billion).

France counts amongst the EU countries with the most expensive (should we say, developed?) social security system. The State has the ambition to provide a minim amount of revenues, called RSA (revenue de solidarité active) to each French citizen with no income or with limited ones. The amount of this benefit is 467 € per month per person, and it is decreasing when the beneficiary starts receiving some income for employment. This measure has been introduced in the early 90s (it was called then RMI, revenue minimum d’insertion), and initially benefited some 422 101 people. It was supposed to help them to get out of poverty, providing at least some basic facilities and preventing social exclusion. But this was without taking into account the huge problems that France has with upward social mobility. Indeed, twenty years later, the number of beneficiaries from the RSA has more than quadrupled– they are now 1,8 million, and their number keeps growing.

Social expenses in France in 2009 (billions of euros)

Source:INSEE

Any French citizen with low or no employment revenues also benefits from a generous health insurance system. During the past year, 2,2 million people has benefited from the free health insurance (called CMU, couverture maladie universelle), which represented an increase of 65% since 2007! Another 4,3 million receive a complementary benefit (the CMU complementaire), which give them access to free additional insurance, and another half million benefit from a tax credit for their private insurance expenses.

Besides those expenses, the French “pay as you go” pension system is chronically in deficit and the recently adopted increase of the retirement age from 65 to 67 years will not solve the problem. The same thing is true for the state-managed health insurance system, which is ever more costly and provides services of decreasing quality. Still, there is a broad consensus among politicians that to open those sectors to private competition is out of question.

Obviously, the government will need to find more and more money if it wants to maintain those social policies in the future years. Since 2008, the financial support has been coming from an increase of the sovereign debt (+20,3 GDP points since the beginning of the crisis). But, in the current context such a financing becomes every day more problematic and it is highly probable that the financial market will simply not allow France to continue down this path. French government recently decided to raise some payroll taxes and ponction high incomes in order to solve this problem. But according to the estimations, this will bring to the budget only €11 billion in 2012 (and pobably less in the following years), which is highly insufficient to set the deficits problem. Will the government have the courage to do the necessary reforms of the social system less than one year before the next presidential elections? The answer is not. France will therefore have to wait again one more year, hoping that a more courageous government will be willing to face the huge undertaking of reforming its social system. A situation that is not without resemblance with that prevailing across the Atlantic.

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