The president of Les Républicains des Hauts-de-France believes that the state has made money thanks to the high inflation that has affected France for more than a year. But it’s more complicated than that. Explanations.
“Inflation enriches the state.” The sentence has been hammered out on all the radios and TVs for several weeks by Xavier Bertrand, the president of the Republicans of the Hauts-de-France region. He repeated it on LCI Tuesday September 26.
“Inflation enriches the state because the state has a surplus of taxes, revenues and tax revenues”he said. “In 2022, the VAT surplus represented 15 billion euros, the corporate tax surplus should, I believe, be 11 billion euros, the income tax surplus 10 billion euros.” Is Xavier Bertrand telling the truth? Is the state getting richer thanks to inflation?
Some revenues have increased significantly in 2022…
“Yes but no”. This is how Mathieu Plane, deputy director of the analysis and forecasting department of the French Observatory of Economic Conditions (OFCE), sums it up.
In principle, the elected Republican is right: taxes in fact bring in more money for the State in times of inflation. If a product costs more, the value added tax (VAT) applied to this product, whether it is 2.1%, 5.5%, 10% or 20%, brings in more, it is mechanical .
The figures given by the elected official are also rather true. They are found in the tables of the National Institute of Statistics and Economic Studies. According to INSEE, VAT revenue increased from 184.7 billion euros in 2021 to 199.7 billion euros in 2022, an increase of 15 billion euros. Corporate tax revenue increased from 45.8 billion euros in 2021 to 59.8 billion euros in 2022, an increase of 14 billion euros – a figure higher than that announced by Xavier Bertrand. Personal income tax revenue increased by 9.3 billion euros, going from 79.8 billion euros in 2021 to 89.1 billion euros in 2022.
…but it wasn’t just due to inflation
However, several nuances must be made. First, not all of these increases are entirely or solely due to inflation. Income tax, for example, is also driven up by the increase in the number of taxable workers and the increase in wages – which is not only an adaptation to inflation. The part of these tax surpluses due to inflation is not known at present.
Then, these revenues do not go entirely into the state coffers, some are intended for local authorities and others for the benefit of various organizations. And those which are intended for the State do not remain in its coffers, these sums are not stored. “There is no jackpot”defends the Ministry of the Economy.
Inflation has also cost the state
Eventually, “it’s more complicated” than what Xavier Bertrand says, in the eyes of Mathieu Plane. Contacted by franceinfo, the economist invites us to have a more global vision of the state budget. Several parameters must be taken into account.
He recalls in particular that the European Central Bank (ECB) has been pursuing a more restrictive economic policy with an increase in its key rates for almost a year in line with inflation. This means that money costs more for households, banks, businesses but also for governments which have debt to repay and which need to borrow money for their annual expenses.
But above all, we must compare government revenues to its expenditures. Even if “inflation can bring money to the State”we must not forget that “expenses are also increasing”, in short. On the one hand, retirement pensions and salaries of civil servants in particular cost the State more in periods of inflation since they increase mechanically and proportionally. On the other hand, state spending on food and energy also costs more, just like for households.
Finally, we must also balance revenues due to inflation with expenditure, rebates and State support to support the purchasing power of the French precisely to cope with this inflation. Here too, no overall figure for VAT-related expenditure is given but an information report from the Senate Finance Committee from June 2023 estimates that “the financial implications of the aid decided in the context of the energy price crisis are considerable. They could be around 85 billion euros between 2021 and 2023”including 40 billion euros for tariff shields and shock absorbers, including also losses in tax revenue. HAS to these 85 billion euros, we must also add the efforts made to support purchasing power in general, not specifically to buy electricity or fuel, such as the exceptional September 2022 back-to-school bonus and other compensation .
French debt continues to grow
With an even more global vision, a general question also arises: is it relevant and/or appropriate to talk about enrichment for an over-indebted State?
Indeed, if we look at the indicators for the year 2022, whether they are linked to inflation or not, we see that the overall increase in revenues did not make it possible to finance all expenses. The State received 1,411 billion euros in revenue in 2022 but spent 1,536 billion euros. A gap of around 125 billion euros. As for many years, the State therefore spent more money than it earned and had to borrow to finance itself.
We can nevertheless note that revenues grew faster than expenditures between 2021 and 2022. When the former increased by 96 billion euros, going from 1,315 billion euros to 1,411 billion euros (+7.3 %), expenditure increased “only” by 59 billion euros, going from 1,477 billion euros to 1,536 billion euros (+4%). According to INSEE, the public deficit fell in 2022, compared to 2021. But here too, this is not only due to inflation, it is also the result of the State’s efforts to reduce its spending. . And yet, the public debt continued to grow, reaching 2,950 billion euros at the end of 2022 and exceeding the symbolic bar of 3,000 billion euros in March 2023.