In France, five VAT rates exist, two of which are reduced. stock.adobe.com
If this idea had been proposed during the presidential campaign, it is not the best decision to relieve the portfolio of the French, argues the Council of compulsory levies.
Would reducing the rate of value added tax (VAT) be beneficial for the wallet of the French? The answer is no, believes the Council of Compulsory Levies (CPO), an organization linked to the Court of Auditors. The institution thus advises against “the use of general or targeted VAT reductions to respond to the consequences of current crises and long-term economic and social issues“, in a report published this Thursday.
In 2021, VAT, the first tricolor tax, had generated a “dynamic return of 186 billion euros, or 17% of compulsory levies“. But this sum, important, could be even more, underlines the document. In France, five VAT rates exist, two of which are reduced, recalls the CPO. If applied daily to consumer purchases, they could bring more money into state coffers. In international comparison, these reduced VAT rates “represent a significant shortfall [à l’État]around 47 billion euros today“, underlines the report.
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A track during the 2022 presidential election
During the last presidential campaign, the VAT rate was hotly debated by the candidates, who saw it as an instrument to restore purchasing power to consumers. A track that does not win the support of the CPO. Jean-Luc Mélenchon (LFI) proposed, for example, to reduce the VAT on basic necessities and to reinstate one on the “great luxuryto fund it. In one of its analyses, the Institut Montaigne specified, however, that “it was not possible, under European rules, to create an increased rate of VAT. France already has two reduced rates, which does not give it the possibility of creating a new VAT rate“.
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For her part, the candidate of the National Rally, Marine Le Pen, wanted to reduce VAT to nothing on a hundred basic necessities. But for the Asterès firm, this abolition of VAT would only have resulted in a gain “from 133 euros» for French households, «i.e. an increase in purchasing power of 0.3%“. However, part of this drop would be captured by the players in the chains and only 10% of the drop would therefore directly benefit households, representing a gain in purchasing power for households of 13 euros per year, “i.e. 0.03% per household“.
This is why this idea of abolishing VAT was not included in the government’s recent anti-inflation basket project. In mid-January, the Minister of the Economy, Bruno Le Maire had specified to exclude “the VAT lever“: “I’m not sure that a few cents of difference really makes a difference for households. The only thing that matters to me is the consumer. What guarantee me that if I remove the VAT, it will not go into the pockets of distributors?»
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Lowering VAT or creating targeted aid?
This analysis is shared by the CPO: if other states, such as Germany, have limited their rates “in the context of the 2020 health crisis, […] empirical studies of these experiments demonstrate limited effects at high cost“. In addition, lowering this rate on energy – such as fuel or gas – risks calling into question “the achievement of national environmental objectives» : this weapon must therefore be handled with care. “Simulations carried out for the CPO confirm that the “tariff shield” appears to be more effective than a reduction in VAT to 10% on gas and electricity in limiting price increases, while being three times more costly“, adds the study.
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Moreover, “a reduction in VAT, particularly on food products, is a less effective measure to support the purchasing power of low-income households than cash transfers“says the Council. According to the institution, the solution would therefore be to create targeted monetary benefits, as the government has done on energy via the energy check or the tariff shield. In short, “the VAT is not the best way to revive the economy, fight against inflation, or conduct sectoral policies. Nor is it an effective instrument in the face of environmental and public health challenges.“Summarized the first president of the Court of Auditors and president of the CPO, Pierre Moscovici, this Thursday.
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