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JOHN LICHFIELD

ANALYSIS: What France’s financial aid bill has revealed about the likelihood of early elections

A package of economic aid to help the French deal with the cost of living crisis has proved the first big test so far of France's new government, which has lost its absolute majority - John Lichfield looks at what the bill's stormy passage can tell us about the months ahead in France.

ANALYSIS: What France's financial aid bill has revealed about the likelihood of early elections
Finance minister Bruno Le Maire addresses the Assemblée nationale during the storm debates on the cost of living crisis. Photo by Christophe ARCHAMBAULT / AFP

A messy experiment is in progress this week on the left bank of the river Seine in Paris. It is called parliamentary democracy.

As a result, petrol and diesel prices may be subsidised this autumn more than the government intended – up to 30 centimes a litre, instead of 18 centimes. Opinions may differ on whether that’s a good thing in the week that France burned in a climate-change induced heatwave.  

For the first time in nearly 30 years, a French President and a French government are having to calculate, cajole and compromise to get basic business through the National Assembly. A €20 billion package of anti-inflation measures is proceeding, snail-like, through the lower house of parliament where June’s election left President Macron’s allies 39 seats short of an overall majority.

There are 20 articles in the cost-of-living package. After three days, deputies have approved five of them, including a 4 percent increase in pensions and welfare payments. The assembly will have to sit until late on Saturday – in July, no less – to meet its timetable and send the government’s plan, and related budget amendments, to the Sénat next week.   

The fact that a quarter of the package has already been agreed suggests that the Prime Minister Elisabeth Borne and her government will find a minimum way of governing over the next few months.

But the most contested articles – notably how to reduce the cost of petrol and diesel – have yet to be reached.

The government wants to phase out its existing 18 centimes a litre subsidy on pump prices from October and replace it with direct payments to people who used their cars for work or who have to drive to work. Opposition groups of Right and Left want massive cuts in petrol and diesel taxes for all.

According to leaks to the French media, the government is now working on a compromise with the centre-right Les Républicains (LR)). The centre-right wanted originally to cut VAT to reduce pump prices to €1.50 a litre (while complaining about the state deficit and debt).

The Républicains leadership and the government have provisionally agreed that the existing 18 centimes a litre subsidy should be  increased to at least 30 centimes from October and phased out from the New Year. The proposed payments to high-mileage motorists would disappear.

It remains to be seen whether all the 61 centre-right deputies – more than enough to give the government a majority  – will go along with this deal. The first couple of weeks of the new assembly have shown that two of the three main opposition groups – the Left and Centre-Right – are themselves much divided.

The government lost a late-night vote on a relatively minor anti-Covid measure last week because some centre-right deputies defied their own leadership and voted against.

The landscape of the new assembly is broadly as follows.

The hard-left La France Insoumise and the Greens oppose almost everything. They shout a great deal and table motions which insult the government. They also complain that the government refuses to work with them.

Their aims are to show off to their core support by: a) opposing Macron at every turn b) defying parliamentary convention.

The rest of the Left – the Socialists and Communists – are calmer. They oppose most of the cost-of-living package as inadequate but abstain, rather than vote against.

The Far Right Rassemblement National is trying to embarrass the government and the Left by seeming serious and constructive. They have opposed most of the package but have voted for some articles and abstained on others.

The government is refusing to negotiate with the Far Right but – to its discomfort – needs them to abstain, at least, on key issues.

The centre-right Les Républicains (LR) are the pivotal group. They are much courted by the government but undisciplined and unreliable. Some of them are closer to the Far Right than to Macron’s Centre.

It is possible that the LR will split in the months ahead but any Macron-compatible centre-right sub-group is likely to fall far short of the 39 extra votes that the government needs.

The cost-of-living package – and maybe even more so the related budget amendments – are an important test of the government’s ability to govern. In her dealings with the assembly so far, the Prime Minister Elisabeth Borne has shown herself to be more politically astute than many people had imagined.

The package will survive, somewhat battered, to progress to the upper house next week and return to the assembly for a final vote early next month. But this is the easy part.

Even if they dislike the details, most of the much-splintered opposition does not want to seem to block inflation relief. The assembly is voting, slowly and painfully, this week on something that French people want.

How can the government, without a parliamentary majority, push through the stuff that France does not want? Such as pensions reform.

There is no obvious answer to that question. My bet would still be on a new parliamentary election next year.   

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MONEY

Revealed: What will you receive from France’s €65bn cost-of-living aid package?

The French parliament has finally passed a massive €65 billion package of measures aimed at helping French residents with the spiralling cost of living. Here's a rundown of the help on offer, who it's available to and when it comes into effect.

Revealed: What will you receive from France's €65bn cost-of-living aid package?

After three weeks of sometimes heated debate, France’s parliament has adopted its multi-part purchasing power package to help mitigate rising cost of living and inflation.

In total, parliament approved a budget of nearly €65 billion for the whole package. 

It includes a raft of measures including price shields, tax rebates and grants. Here’s what is included and who will benefit.

Electricity and gas The government has voted to extend the tariff shield on gas and electricity prices until the end of the year: this means that gas prices will continue to remain frozen and that price hikes for electricity prices will be capped at four percent. 

For who: This applies to everyone who has a gas or electricity account in France.

When: The price freeze is already in effect and will continue until at least December 31st.

Fuel subsidy – The government’s fuel rebate (on petrol/gasoline and diesel) will be increased from €0.18 per litre to €0.30 in September and October, and then in November and December it will fall to €0.10. 

For who: All drivers (including tourists) – this is applied automatically at all fuel stations in France

When: The €0.18 per litre rebate is already in place and remains until August 31st, and rises to €0.30 on September 1st.

Pensions – The index point for pensions will be raised by four percent.

Who: This covers anyone who receives a French pension – roughly 14 million people – it does not affect anyone who gets a pension from another country.

When: From September 9th. 

Abolishing the TV licence fee – The annual TV licence raised €3.7 billion a year for public broadcasting, with the majority having gone toward France Télévisions, but has now been scrapped. It was €138 per household. 

For who: Any household with a television. This equates to about 23 million households in France who will no longer have to pay this yearly tax.

When: The was due to be levied on November 15th, but this year no bills will be sent out.

Tripling the Macron bonus – The maximum annual bonus – which is exempt from income and social security taxes – will be tripled.

It is a one time, tax-free payout that can be given to workers by their employers – if they chose to. Companies will now be able to pay up to €3,000 to their employees (and up to €6,000 for those with a profit-sharing scheme).

Who: This pertains to salariés (employees) whose businesses choose to offer this bonus.

When: The bonus can be paid between August 1st and December 31st.

Rent cap – Rent increases will be limited to 3.5 percent per year for existing tenants. Some cities already have in place their own rent control schemes, but the 3.5 percent cap is nationwide.

Who – This affects anyone who already has a tenancy agreement for a property in France (and also affects all landlords who are banned from making big rent hikes).

When – The 3.5 percent cap concerns annual rent increases that fall between July 2022 and June 2023.

Housing allowance – Those who benefit from personalised assistance for housing (APL) will see that increased by 3.5 percent.

Who: This pertains to those who qualify for governmental financial assistance with rent. Typically, this means low-income households. If you are already on APL – around 3.5 million people – the increase will be automatic, if you think you might qualify, apply through your local CAF.

When: The increase comes in your next payment, with the increased rate backdated to July 1st 2022.

Social benefits – The RSA top-up benefit will be increased by four percent (local authorities, who deal with RSA, will receive €600 million to help them finance and allocate this increase). Additionally, those who benefit from the ‘prime d’activité‘ (activity bonus) will see that value raised by four percent as well.

Who: Unemployed people below the age of 25 can qualify for RSA – this pertains to about 1.9 million people in France. The activity bonus is available to low-income workers – about 4.3 million people.

When: Catch-up payments will be in place from August 18th to September 5th. On September 5th, the updated payment will begin to be paid out.

Student grants – An increase of 4 percent for student grants (bourses) for higher education

Who: Students under the age of 28 who qualify for financial assistance in the form of grants. These students must qualify as ‘financially precarious’ for the school year of 2022-2023.

When: September 2022

Back-to-school grants – Families who meet certain income requirements are eligible for an allowance to help cover back-to-school costs – that grant will increase by four percent this year. There will also be an extra €100 subsidy for eligible families (with an additional €50 per child) paid “to those who need it most” according to Finance Minister Bruno Le Maire in an interview with RTL. 

Who: Low-income families with children. You can test your family’s eligibility on the website www.service-public.fr. This aid will impact 10.8 million households.

When: The one time payment will be paid at the start of the school-year in September.

The option to convert overtime days into extra cash – This is encompassed in two measures: increasing the ceiling of tax exempt overtime hours to €7,500 and opening the possibility for companies to buy back RTT days from their employees.

Eligible employees covered by the 35-hour week agreement accrue time in lieu if they work overtime, known as RTT days. Currently this time is taken as extra vacation days, but now employees will have the option to forgo the time off and instead be paid extra.

Who: For the buying back of RTT days, this applies to employees (salariés) who have an RTT agreement with their company.

For the increased cap on non-taxed overtime work, this applies to a range of employees, such as those who have 35-hour per week contracts and have their employer request that they work overtime or those who work beyond their part-time contract amount. You can learn more about whether you have the ability to declare overtime hours HERE

When: The RTT days buyout will run from between January 1st, 2022 to December 31st, 2025. For employees eligible for tax-free overtime compensation, the ceiling of €7,500 will only be in place for the year 2022.

READ MORE: EXPLAINED: Why is France’s 35-hour week such a sacred cow?

Pay rise for public sector workers – public sector pay will get a four percent rise in the index.

Who: Anyone employed in France as a fonctionnaire (eg civil servants, teachers, librarians).

When: This will be retroactive to July 1st

Assistance for some self-employed workers – A reduction in health and maternity insurance contributions will be introduced for low-earning self-employed workers. “Microentrepreneurs” will also benefit from a reduction in their flat-rate contributions.

Who: Self-employed workers whose monthly income does not exceed 1.6 times the minimum wage and who are registered as ‘microentrepeneurs’

When: TBC

The biometric carte vitale –  The Senate introduced this into the purchasing power package, but it is not a benefit. It will involve the implementation of a biometric carte vitale health card to “fight against social fraud” by adding an electronic chip with biometric data on it to health insurance cards. You can read more HERE.

Who: Everyone who is registered in the French health system and has a carte vitale (about 60 million people)

When: Lawmakers will begin plans to implement the plans in Autumn 2022, but it’s not clearly exactly what form the rollout will take.

How much will these measures impact inflation?

Some measures will likely be more effective than others. For instance, the extension of the tariff shield and increase of the fuel rebate in the early fall is largely to thank for France’s inflation level being two points lower than the European average, according to INSEE.

On the other hand, the tripling of the ceiling for the (optional) Macron bonus will likely not make a large difference. This is because it will likely not be widely taken advantage of, as last year only 4 million French people received the optional bonus, with the approximate average of the bonus having been only €500.

The pension changes will impact about 14.8 million people in France. However, according to economist Christopher Dembik, the revalorsation values are based on actual inflation and not on inflation expectations. “These revaluation measures will be too weak by the time they will be implemented,” Dembik said to French daily Le Parisien.

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