Posted Jul 23, 2022, 12:00 PM
The executive gives up its project of “fuel allowance” for the most modest workers and increases the rebate at the pump. Is this an acceptable option?
In times of high inflation, how far should we go in using fiscal tools to mitigate the shock to households? The energy crisis represents a loss of national income of the order of 2 points of GDP. The question that arises is the distribution of this cost, because we have no short-term budgetary means of canceling it.
With the fuel allowance, the objective was to target the most modest who have a high exposure to rising fuel prices. This makes it possible to redistribute energy purchasing power by bringing national solidarity into play, with the underlying idea of avoiding social problems.
But there is an important point that we must not forget: by opting for more targeted measures, we must assume that people above the threshold are implicitly put to work. The rebate at the pump is general and avoids this choice, but it is expensive for public finances, so it can only be temporary.
Renouncing targeted aid, is it sustainable for public finances?
Public debt to sustainably support household purchasing power after an energy shock is not a good policy: it’s bad public debt. In addition, we do not promote energy savings. We are only postponing the problem in time by increasing the debt. We have to make political choices and decide who to help and how. It will therefore be necessary to target more aid in favor of the most vulnerable. This is essential.
For me, starting this refocusing in 2023 was a good option. France must reduce its public deficit to stabilize the debt and to regain the investment capacities necessary for its economic growth. My argument is not based on an alleged unsustainability of the French public debt. We must not dramatize the situation unnecessarily, real interest rates are still very negative. My argument is based on good management of our fiscal policy.
The executive must therefore end the tariff shield for all from 2023, as he has shown the intention…
To reduce public deficits, the executive must gradually stop its general measures to support purchasing power.
When the tariff shield was put in place, I was not opposed to this measure. It certainly has a weak redistributive effect. It also contributes to worsening our public deficit. But it allows France to have inflation 2 points lower than that of its neighbors in the euro zone. This improves its price competitiveness compared to other countries and could help restore its export capacity. This lower inflation gives another advantage to France, on the price-wage spiral.
Today the question arises of the fair sharing of the cost of inflation. What do you think it should be?
I distinguish two subjects. The first is the fair distribution of our national impoverishment due to the rise in energy prices we have just discussed. The second is the joint evolution of prices and wages: the debate on the price-wage spiral.
A benchmark should be that the management of this crisis should not reduce the share of wages in value added. If the share of wages temporarily increases in the crisis compared to profits, it is because companies are called upon to help employees. Wages therefore have to move at least in line with core inflation (excluding the energy effect) plus labor productivity.
All these elements fluctuate, but a minimum increase of 3.5% in wages is therefore relevant. These amounts must of course be broken down by branch.
Inflation and the rise in the minimum wage are fueling demands for wage increases. Faced with claims, are all companies in the same boat?
Second-round effects, ie wage increases that follow the rise in prices, are necessary if they are not too large. We must be wary of third-round effects: the induced rise in prices after the rise in wages! The reality, however, is the very strong heterogeneity of sectoral situations, which has been a constant of economic policy since the health crisis.
We must announce now that the energy crisis is before us, because the budgetary measures cannot last.
In addition, there is a reassessment of the arduous work of employees which should lead to increases in remuneration to attract skills in certain sectors. In the hotel and catering industry, for example, companies have no choice but to raise salaries to find workers.
Faced with an energy crisis that will last, the executive calls for measures of “energy sobriety”. Who should start the effort first? Households or businesses?
Rather than sobriety, I prefer the term energy savings, it’s much clearer. In Germany as in France, an effort will be required from companies in the sectors that are less dependent on energy to produce. Some households will then be involved. The political choice is to define which households we want to make less of a contribution: it must be the households that cannot rapidly reduce their energy consumption.
But we must announce now that the energy crisis is ahead of us because the budgetary measures cannot last. We are going to live a Churchillian moment of a fair distribution of the necessary effort. We must not hide this important debate in bad public debt.