Happy Birthday, VAT! Yes, the value added tax celebrates its 70th anniversary this Wednesday. And despite this advanced age, the old lady retains all her importance in the French economy. You forget it sometimes, but no.
It’s there when you go shopping, at 5.5% on your prime rib, your packet of pasta, the bottle of Coke or any food purchase. It appears again, at 10% this time, when you have a coffee at the counter before work. Are you more of a pack of beer at home with friends in front of PSG-Barcelona? That will be 20%, like all products and services considered non-essential. All these calculations are giving you a headache and you need a little doliprane? 2.1% VAT on medicines, yes, even that is taxed.
What does life without VAT look like?
That’s actually samples. So much so that we imagined a scenario that even Uncle Scrooge, Bruno Le Maire and the right-wing CEO of your company might find a bit too liberal. What if, in this period of inflation and purchasing power crisis, we simply abolished VAT, with the wave of a magic wand?
Abracadabra! Here is 370 euros saved on average per month for the French, according to calculations by economists Thomas Piketty, Camille Landais and Emmanuel Saez in the book For a tax revolution, An income tax for the 21st century (2010, Seuil Edition). Not bad is not it ? No. “This is clearly a false good idea,” warns Dominique Plihon, economist and member of Attac France. The negative consequences would be much greater than the relative benefits.”
” A disaster “
Philippe Légé, professor of economics at the ISST of the University of Paris 1 Panthéon-Sorbonne and co-author of Think about the alternative (2024, Fayard) goes so far as to describe a “catastrophe”. This is because VAT, whose revenues are estimated in 2023 at 202 billion euros, represents 37.5% of the country’s gross tax revenues. By far the leading national tax, ahead of income tax (26%) and corporate tax (13%).
The opportunity for the teacher to take out the calculator. State personnel costs, i.e. 2.5 million agents? 138.8 billion euros in 2022. Add the territorial civil service, 1.9 million agents, and the hospital civil service, 1.2 million, and you obtain a payroll “of the order of 325 billion” . Suffice it to say that without VAT, it becomes complex to imagine public services that are even remotely functional.
A tax “very effective in redistributing money”
Without VAT, it is difficult to even imagine public services at all. “You would have to pay to send your child to school or to file a complaint at the police station. You would have to pay thousands of euros for a day in intensive care, rather than the 20 euros of the hospital package,” illustrates Philippe Léger, not really a fan of this option.
“VAT is widely used and very effective in redistributing money,” believes Pierre Boyer, professor at the Ecole Polytechnique and author of Can you be happy paying taxes?based in particular on a note from the Court of Audit in 2023. “The analysis showed, for example, that the energy check had been more effective in supporting precarious households than a variation in VAT for these households. It’s better to take money from everyone and then redistribute it.” The specialist adds that the countries with the greatest spending on social protections, such as the Scandinavian nations, are also those with the highest VAT.
VAT, a “success story”
“While the richest 10% have 12.7 times more primary income – wages and capital income, on average, compared to the poorest 10%, this gap increases to 3.2 once taken into account not only social benefits, but also the public services they benefit from, recalls Philippe Légé. It is essential to maintain a universal, free and good quality public service. »
Pierre Boyer even evokes a French “success story”. A tricolor invention, VAT is now used “by all modern States, with the notable exception of the United States” (not necessarily known for the quality of their public services). A VAT of at least 15% is even set in the EU, with exceptions.
Time for adaptations?
It’s understood, VAT will remain there. Should we not touch it at all? If Dominique Plihon recognizes “an essential tax which cannot be eliminated”, the fact remains that at 70 years old, VAT could at least afford a small facelift. This is because the tax “remains particularly unfair”, notes the economist. “Whether you are unemployed, on minimum wage, CSP + or Bernard Arnaut, you pay the same rate. » However, the more modest your income, the more space VAT takes up in your budget.
“We could adjust VAT by setting it at 0% for essential products, and on the contrary overtax certain products which are not essential, such as alcohol or luxury cars,” continues Dominique Plihon. Without doing without it, according to him, we could also “reduce the importance of the share of VAT in public finances, in favor of more egalitarian taxes such as income tax. » The latter has, in France, one of the lowest weights in Europe compared to GDP. Perhaps it is there, the wave of the magic wand.