IPP Policy Brief n°49 - February 2020

Budget 2020: what effects on households?

IPP Policy Brief n°49

February 2020

Authors: Brice Fabre, Arthur Guillouzouic, Chloé Lallemand, Claire Leroy

Contact: brice.fabre@ipp.eu, claire.leroy@ipp.eu

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logo-pdf-minBudget 2020: what effects on households?

 

This Policy brief analyses the effects of the 2020 social and fiscal measures as voted by the Parliament at the end of 2019. This study follows the key conference given by the IPP in October 2019.

Associated graphs and datas are available in the dedicated website: budget.ipp.eu

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Summary:

This policy brief analyzes the redistributive effects of the social and fiscal policy measures for households coming into force in 2020. Our results highlight an average gain of 1% in disposable income for the 60% of households located in the middle of the income distribution, with a standard of living between €1,274 and €2,803 per month. These increases in disposable income for the middle classes are partly explained by the latest wave of housing tax cuts. The income tax cut is the other important measure of the 2020 budget, and leads to greater gains for households above the median, with a standard of living above €1,778 per month. The poorest 8% of households, below €837 per month, and the wealthiest 5% of households, above €4,034 per month, are little affected by the socio–fiscal measures coming into force in 2020. We then analyze the effect of all the measures coming into force between 2018 and 2020. We observe gains in disposable income for a majority of households, with a maximum of 3.2% of disposable income between the 25th and 75th standard-of-living percentile (including households with a standard of living between €1,274 and €2,435 per month). Only the poorest households, below €789 per month, do not benefit on average from these measures. The wealthiest 1% of households, above €6,880 per month, see their disposable income increase by 2.2%, with an effect of 3.9% for the wealthiest 0.1% of households with a standard of living above €18,689 per month.

 

Key points:

  • The 2020 budget proposes a concomitant reduction in taxes (€9.5 billion, according to the government) and social benets (€2.8 billion), implying an overall increase in purchasing power of €6.7 billion for 2020.
  • A large middle class, with a standard of living between €1,274 and €2,803 per month, benefits from the reforms planned for 2020, with an average gain of 1% of disposable income. These gains are greater for the upper middle classes, reaching a peak of 1.5% for households earning around €2,300 per month.
  • Households at the bottom and top of the income distribution benefit little or not at all from these measures.
  • All the reforms introduced during Emmanuel Macron’s presidency have together led to gains in disposable income of about 3.2% for the 50% of households in the middle of the income distribution, with a standard of living of between €1,274 and €2,435 per month.
  • The poorest 7% of households, below €789 per month, are little affected by the reforms implemented since 2018. The wealthiest 1% of households, above €6,880 per month, have seen their disposable income increase by 2.2%, and the top 0.1% (above €18,689 per month) by 3.9%.