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Blame the billionaires, tax the rich and the big capitalist companies (Total and Arnaud)

Source: FT “Blame the billionaires?” L. Abboud, Feb. 1, 2023

The French pension system is unsustainable today (and tomorrow, of course), it is in the red (hidden by the official body (le COR) in charge of projecting the pension burden over the coming decades.

The Macron government has decided to raise the retirement age from 62 to 64 over seven years (it is the lowest working age in Europe). No solution is perfect, especially this one, there are no winners, as the majority of the population seems to want to work less, some are even calling for a return to the ridiculous retirement age of 60 set up by the Mitterrand’s Government (the economic legacy of F. Mitterrand is a disaster that is still damaging the French economy).

1) The French pension system is based on a pay-as-you-go (PAYG) system, which means that today's workers pay for today retirees (they don't save for their future pensions). It is not difficult to understand that in a country where there are fewer people working (end of the baby boom) and more elderly people (retirement of the baby boomers and an extraordinary increase in life expectancy), it is necessary to: a) increase working hours for everyone, or/and b) to reduce the generous pension benefits (especially for civil servants), or/and c) to abolish the defined benefit clause in the pension system (for the CNAV, the compulsory pension for the private sector, for civil servants and for employees of public companies (RATP, SNCF, EdF, BdF). Pension benefits are, in one way or another, a function of salary (70% of the last monthly salary for civil servants, 50% of the average salary over 25 years for private sector employees).

2) The PAYG system is currently in deficit (contrary to what the COR says). The COR is an official body in charge of projecting pension expenditure over the next decades. The COR looks only at the budget of the pension system and includes all public transfers and state subsidies as revenue for the pension system, "forgetting" that these subsidies are nothing else than expenditure for the central government (apparently it does not know the concept of a consolidated budget at the general government level). This deficit is included in the French overall (general government) deficit. It is the main driver of the French structural deficit. Borrowing to finance a deficit created by "old people" is not exactly a growth investment (Mr. Blanchard spent his time arguing that public debt does not matter, he would be well advised to look at the composition of the French public deficit).

3) The French pension system is centralised (unlike the British system, which is decentralised and based on capitalisation), since it is mainly a defined benefit system, there is a commitment to finance the pensions of a growing ageing population, since it cannot be financed by regular contributions (already extremely high) therefore the state has to silently finance the deficit incurred by civil servants and the private sector through special taxes, transfers from other social schemes and borrowing.

Therefore, Macron's reform to increase working hours is a good decision in a country where working hours are among the lowest in the OECD, but it is not enough. A capitalisation system, in addition to the PAIG system, would have been a good measure, but the people shouting in the streets today are against it... (perhaps because in capitalisation there is the word capital and if you despise the rich you are, by definition, against Capital).

Faced with this situation, France's future generations have no alternative but to accept a reduction in their pension benefits, or to beg the ECB to continue financing our public debt through QE as in the past, or to face a financial panic when the markets that own our debt begin to understand that our fiscal position is not only fragile today but will worsen tomorrow. The pension system deficit is the largest driver of the public sector deficit of the general government and is not about to fade out any time soon.

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