French policy institute Institut Montaigne has proposed shifting 69 billion euros in payroll charges onto consumer taxes to raise net wages across France, where workers face some of the largest gaps between gross and net pay in the developed world.
The Paris-based think tank published a series of policy reports on Tuesday, October 6, ahead of the upcoming French presidential election. The proposal recommends reducing mandatory social contributions paid by employers and workers while increasing the value-added tax on goods and services.
Institut Montaigne is an independent liberal policy research organization focused on public finance, economic competitiveness, and administrative reform in France. According to data from the Organisation for Economic Co-operation and Development, an intergovernmental group of 38 industrial nations, France maintains one of the highest tax wedges on labor among market economies.
Pay Slip Disparity at Village Bistro
Under current tax rules in France, when an employer chooses to give a worker a 100 euro raise, the employee receives only 53 euros after mandatory deductions.
A news crew from the French television channel TF1 20H met workers at a village bistro during lunchtime to discuss earnings. Angélique, who has worked in the catering industry for 14 years, examined her pay slip on her smartphone after her shift.
Her gross monthly salary stood at 1,939.05 euros, but after mandatory employee social contributions were deducted, her net salary before income tax dropped to 1,400 euros. Showing her pay statement, she remarked that if she could actually earn the gross amount, she would be happy.
In the French payroll system, gross salary represents total contract earnings before statutory deductions, while net salary reflects the actual funds deposited into a worker's account. Mandatory social contributions deducted from paychecks fund national healthcare, state pensions, unemployment insurance, workplace accident compensation, and family benefits.
Employer Costs and Sacrifices
Angélique's employers, Stéphane and Aline, said they would like to give her a pay raise but are struggling to pay themselves.
Stéphane Lévêque, the manager of Café de la mairie in Les Loges-en-Josas, explained that the owners have their hands tied. He said that their combined net salary as co-employers is 1,500 euros per month, adding that they sacrifice their own income as business owners to keep the establishment running.
Les Loges-en-Josas is a small suburban commune located in the Yvelines department, part of the Île-de-France region west of Paris. Small hospitality businesses in suburban French towns often operate on narrow profit margins while handling high fixed labor overheads.
Proposed Tax Shift to Boost Wages
To narrow the gap between gross and net earnings, Institut Montaigne suggested shifting the financial burden of social security away from wages and toward consumption.
François Chimits, an economist and head of the Europe department at Institut Montaigne, evaluated the proposed shift at approximately 69 billion euros of charges currently weighing on labor. He said transferring these charges to consumption through higher value-added tax would ultimately result in a net wage increase of about 4 percent for an average employee.
Value-added tax is a broad-based consumption tax collected on sales of goods and services throughout the supply chain. In France, the standard rate for value-added tax is 20 percent on most items, with reduced rates applied to essential goods such as food and energy.
Business Reactions and Next Steps
The proposal to stop funding the social model through wage charges has received support from small business leaders in the region.
Catherine Guerniou, head of window manufacturing company La Fenêtrière in Champigny-sur-Marne, welcomed the idea of shifting tax burdens to consumption. She said she wished social charges could be lightened to restore purchasing power to workers, noting that private businesses cannot permanently offset state budget deficits.
Champigny-sur-Marne is a commercial and industrial suburb situated in the Val-de-Marne department, southeast of Paris, where numerous small and medium-sized enterprises operate.
The tax reform proposal arrives as policy institutes present economic roadmaps ahead of the French presidential election. France continues to rank among the OECD nations with the widest gap between gross labor costs and net worker pay.
