A number of reforms to the socio-fiscal system / tax-and-transfer system were introduced during the 2017–2022 five-year term. The average gain for households resulting from these measures is 1.9 per cent of their standard of living, an effect due mainly to reductions in compulsory levies. However, this average effect masks significant variation depending on household income levels. Although these measures led to an average increase in disposable income for all households classified by the hundredth of their standard of living, the gains amounted to just 0.8 per cent for the lowest 5 per cent of households, compared with 3.3 per cent for the wealthiest 1 per cent. In line with the government’s objectives of encouraging work, those in employment saw an average gain of 2.6 per cent, compared with 0.6 per cent for pensioners and a loss of 1.1 per cent for the unemployed. These effects are attributable to the shift in contributions to the CSG, the increase in the activity bonus and the reform of unemployment insurance. The higher gains for those on the highest incomes can be explained both by the replacement of the ISF with the IFI and by the introduction of the single flat-rate levy (PFU) on capital income. Within each hundredth of a living standard bracket, there is a significant proportion of those who have lost out (24 per cent on average) despite positive average gains. The combination of increases in indirect taxation (tobacco and energy), certain cuts to social benefits (housing benefit) or their under-indexation (particularly state pensions) has had a negative impact on the disposable income of certain households, which have not necessarily benefited from reductions in compulsory levies.
Redistributive effects of the socio-fiscal measures implemented during the 2017–2022 five-year term, aimed at households
This note examines in detail the various developments relating to the reforms of the Socio-fiscal system / tax-and-transfer system during the 2017–2022 five-year term, and highlights a key finding: whilst the gains resulting from these social and tax reforms are, on average, clearly positive for all standards of living, there is considerable variation.
Reference IPP Policy Brief No. 81
Presentation
Key Results
- The socio-fiscal measures implemented during the 2017–2022 five-year term resulted in net transfers to households, driven primarily by a €24.4 billion reduction in compulsory levies.
- All income deciles saw positive gains on average, resulting in an average increase of 1.9 per cent in the initially adjusted standard of living. The poorest 5 per cent saw an increase of 0.8 per cent, compared with 3.3 per cent for the wealthiest 1 per cent.
- Those in employment saw an average gain of 2.6 per cent, compared with 0.6 per cent for Pensions and a loss of 1.1 per cent for the unemployed.
- There is considerable variation in the effects, even within the same income bracket, with nearly 24 per cent of people losing out compared with 67 per cent gaining on average.
- The redistributive effects of socio-fiscal measures cannot be equated with the impact on purchasing power. The latter should, in particular, take into account changes in the price index and the impact of the measures on households’ primary income.
- We are replicating the analysis carried out by the Directorate-General of the Treasury (DGT). The difference between our results and those of the DGT stems mainly from the different scope of the measures taken into account: measures that came into force during the 2017–2022 five-year term (DGT) versus measures decided upon during that period (IPP).
