According to the Oxfam report published Monday, January 17, the first five fortunes of the country, “have doubled their wealth since the start of the pandemic: they have earned 173 billion euros. This is close to what the state has spent to deal with Covid-19 in one year”. A misleading statement that questions the veracity of the figures issued by the NGO and the origin of these increases in fortune.
Comparison is not right. Some excerpts from the latest Oxfam report could suggest that the gains of the country’s top five fortunes (Bernard Arnault-LVMH, Françoise Bettencourt Meyers-l’Oréal, François Pinault-Kering, Alain and Gérard Wertheimer-Chanel) come from public spending. According to Quentin Parrinello, spokesperson for Oxfam France, the pandemic would even have been a boon for the latter: “If they got rich, it was not thanks to the invisible hand of the market, nor by the brilliant strategic choices , but mainly because of the unconditional public money poured in by governments and central banks that they were able to profit from soaring stock prices”. Decryption.
The French little invested in action
Has the money distributed by the French State to national private economic agents been transferred directly to the stock market, thus inflating the valuation of the holdings of the 5 largest fortunes in the country? Very unlikely, the French are, in fact, very little invested in action compared to the United States for example. From 7 million before the subprime crisis in 2008, the number of French individual shareholders continued to decline until June 2021. Listed shares thus weigh historically little in the portfolio of French people: in 2019, they represented barely 4.9% of the country’s household financial savings. Even the government’s fiscal boost in 2018 failed to change savings habits. The end of the decrease in the number of share holders, observed recently by the AMF, could above all be explained by a windfall effect due to the pandemic crash, a distant past in view of the current valuations of the CAC 40.
Did the French buy the products offered by the aforementioned large houses en masse? Demand in France is relatively low for luxury goods, as indicated by the sales structures of the 4 houses attacked: in 2020, France’s share in LVMH’s sales corresponded to only 7.5% of the total . Same observation for L’Oréal, whose sales in Western Europe accounted for 26.8%, and for Kering (27.9%). As for Chanel, for the Western Europe zone, the decline in activity in 2020 was estimated at 36.5%. It is therefore unlikely that French investors have received public money that has served to enrich the 5 largest French fortunes through the consumption of luxury goods. So where does the money come from that has allowed the balance sheets of the five largest French fortunes to swell?
Companies that benefit from the confidence of foreign investors
The spokesperson for Oxfam denounces a state of affairs: stock market inflation caused by the proactive action of central banks. The latter intervene directly in the financial markets in order to buy back assets and avoid, when necessary, a global economic crisis. The European Central Bank (ECB) thus acted on the secondary market for sovereign and private bond securities from 2020 to combat the effects of the pandemic, but not on the stock markets. It is the investor who received the cash from the sale of his bond securities who decided to invest in it.
The latter, like any rational economic agent, seeks an investment offering the best risk/gain ratio. It is moreover on this principle of economic rationality that the justification of the asset purchase programs of a central bank rests. The latter believes that only the profit-seeking agent can put his money in the best place. The latter seem to have freely chosen, among others, the companies owned by the 5 largest French fortunes.
Such an investment is however justified when we look at the growth and profitability curves of these 4 houses: current operating profit for the first half of 2021 4 times higher than that of 2020 for LVMH, turnover for the Kering group up +12.2% on a comparable basis in the third quarter of 2021 compared to the third quarter of 2020, an exceptional first half of 2022 growth for L’Oréal (+20.7%) and a profitability rate for the Chanel group estimated at 25 % after tax. Why then does Oxfam France target the 5 largest French fortunes?
A problem of redistribution that does not stand up to fiscal reality
The pandemic has accentuated inequalities everywhere in the world, as indicated by the Word Inequality Report 2022 published in December 2021. To counter this state of affairs, Oxfam France, “calls for a radical change in fiscal policy” and “puts on the table of presidential candidates 15 quantified reforms allowing to collect at least 65 billion additional euros per year”, which consist in taxing the most fortunate, in particular according to their capital.
But taxing the richest with a magic wand can be dangerous for public finances. Indeed, the majority of these fortunes being invested in companies, the tax calculated on the basis of the capital can, consequently, exceed the incomes. Like any rational economic agent, the wealthiest will therefore limit their exposure to this tax, in particular through tax exile, and the revenue collected directly (or in connection with their job-creating investments) will dry up. It was by doing the exact opposite that, according to France Strategy, France reversed the trend in 2018: that year, the country witnessed the collapse of tax exile, became the the leading host country for foreign investment in Europe and has seen the dividends paid by CAC 40 companies to its shareholders – 60% French in 2021 – explode.
With the declarations of Oxfam and its recommendations, it is thus the less well-off taxpayers who could assume a heavier burden, that is to say the current state of affairs that the NGO denounces.
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