This is my translation of an analytical note written by François Ecalle on the French blog Fipeco (Finances publiques et Économie, translatable as Public Finance and the Economy). Ecalle is a retired senior government official, being a former Counsellor for the Court of Auditors, a former member of the High Council of Public Finance and of the Authority for Public Statistics, as well as a lecturer in economic policy at University of Paris-I.
Ecalle focuses in this article on the French social security system and its deficit. He traces the system’s historical roots in two distinct models, and attributes some of its inconsistency and impenetrability to the shifting mix of the two over time. This is the first part of my translation of the article. My thanks to François Ecalle for permission to publish this translation on my blog.
French article by François Ecalle
English translation by Urmila Nair.
Date of publication: June 26, 2020.
To view the original French article, click HERE
The nature of social security in France has changed. It is often in deficit, and the notion of restoring its balance no longer has much meaning. Accordingly, this Analytical Note proposes a radical change to the line separating financing by the state and by social security.
(A) The notions of social security balance and debt have lost much of their meaning.
(1) The multiple definitions of social security and its balance
Social security in France is divided into “schemes” (régimes). Each scheme pertains to a specific population category, and is defined by rules regarding the benefits accorded to that category and the modalities of financing the scheme. There is thus a general scheme for salaried workers in the private sector (excluding the agricultural sector); there are schemes for self-employed workers, public officials, the employees of certain public companies (like SNCF, the French National Railway Company), agricultural workers, and so forth.
These schemes can be divided into five branches (pending the implementation of the autonomy branch): retirement or old-age; health; family; accidents at work and occupational diseases; and the contributions and collections branches.
In case of old-age insurance, a distinction is made between basic schemes and supplementary schemes. Both are compulsory but are managed differently.
Each of the compulsory basic schemes has its own surplus or deficit. The largest is the general scheme for non-agricultural salaried workers in the private sector, which registered a deficit of €0.4 billion in 2019.
Now the social security financing laws cover the compulsory basic schemes as well as the bodies contributing to their financing: the Old-Age Solidarity Fund (FSV, le fonds de solidarité vieillesse), the Social Debt Redemption Fund (CADES, la caisse d’amortissement de la dette sociale), and the National Pension Reserve Fund (FRR, le fonds de réserve pour les retraites).
The balance of the old-age branch of the general scheme therefore makes little sense if one does not include within it the balance of the Old-Age Solidarity Fund (FSV), since the latter finances part of the non-contributory benefits of the general scheme (that is, the benefits not associated with the payment of social contributions). It is therefore more relevant to consider the cumulative balance of the general scheme and the FSV, which together registered a deficit of €1.9 billion in 2019.
However, social security is not limited to the general scheme, and the balance of all the compulsory basic schemes together with the FSV balance showed a deficit of €1.9 billion in 2019, the schemes other than the general scheme being approximately balanced overall.
Furthermore, within the old-age branch, the distinction between the compulsory basic pension scheme and the compulsory supplementary pension scheme is mainly a historical artifact, as is the case with the distinction between unemployment insurance and social security in the legal sense1. For economists and for national accountants, these social insurance schemes are social security funds like any other, and fall within the ambit of general government.
In France, social security funds (ASSO) also include the Social Debt Redemption Fund (CADES), the National Pension Reserve Fund (FRR), hospitals and the Job Center (Pôle Emploi). CADES, together with the French Social Security Central Agency (ACOSS, Agence centrale des organismes de sécurité sociale), bears the debt of the compulsory basic social security schemes. The National Pension Reserve Fund (FRR) holds the reserves that finance the old-age branch of the general scheme.
In 2019, the balance of the social security funds (ASSO) in the national accounts showed a surplus of €14.1 billion (0.6% of GDP). This was notably due to the surplus of the Social Debt Redemption Fund (CADES, to the tune of €15.9 billion)2.
There are thus many definitions of the social security balance. And the same is true of social debt. One can distinguish in particular between two types of debt: on the one hand is the debt of the general scheme, borne by the French Social Security Central Agency (ACOSS, which amounted to €22 billion at the end of 2019) or by the Social Debt Redemption Fund (CADES, which stood at €89 billion). On the other is the debt of the social security funds (ASSO, which stood at €193 billion).
(2) Of Bismarck and Beveridge: an evolution from insurance schemes financed by social contributions to universal schemes financed by taxes earmarked by the state
Social security in France was originally based on the Bismarck or social health insurance model 3: social benefits were financed by social contributions and depended heavily on the latter, insofar as it was necessary to pay social contributions in order to receive social benefits4. In such a model, scheme managers have to balance social benefits and contributions. In case of a deficit, either the social contribution rate has to be increased or the social benefits reduced. The notion of a balance of accounts of schemes thus has a clear meaning.
Subsequently, health insurance and family benefits were universalized, following the logic of solidarity of the Beveridge model of health care5. These benefits were also adjusted for revenue in case of family allowances (allocation familiale)6. With the creation of the Generalized Social Contribution (CSG, contribution sociale généralisée), the financing of health insurance was partly adapted to replace salaried workers’ social contributions. However, the adaptation was only partial since employers’ social contributions have been maintained. Thus, family benefits continue to be financed by (employers’) social contributions.
The relation between social contributions and benefits has also been weakened by reductions in social contributions, particularly those paid by workers earning low wages (these reductions amounting to €60 billion in 2019 for all the social security schemes combined). There has been no corresponding reduction in social benefits.
Additionally, various provisions have introduced elements of solidarity in all schemes (in keeping with the Beveridge model): minimum replacement income, increase in social benefits as a function of family situation, disabilities, etc.
As per the report of July 2019 on the creation of a universal pension plan, solidarity schemes represent around a quarter of the expenditure of pension schemes.
Finally, a number of taxes have been earmarked for social security. Social contributions thus represented only around half of the revenues of the general scheme and of the Old-Age Solidarity Fund (FSV) in 2019.
The creation of the Old-Age Solidarity Fund (FSV) has enabled a certain degree of clarification: this fund makes it possible to isolate certain pension benefits that pertain to a logic of solidarity (for instance, the validation of quarters as periods of unemployment). These pension benefits can be financed by earmarked taxes, that is, in accordance with the Beveridge model (mainly by the Generalized Social Contribution, CSG). Furthermore, the financing of housing allocations has been transferred from the family branch of social security to the state. This clarification is, however, insufficient.
In the Beveridge model, social benefits must be financed by taxes and by the state, as is the case in the UK and in Scandinavian countries. The present French system contains an often indiscriminate mix of elements of the Beveridge and Bismarck models. The balance of social security accounts depends heavily on the sharing of solidarity expenditure between social security schemes and the state (or even local authorities) on the one hand, and the distribution of earmarked taxes on the other. The sharing of solidarity expenditure and taxes, between state, schemes and funds, has become simultaneously financially decisive, incomprehensible and very unstable7.
To be continued in What does the social security deficit mean and how can it be improved? – Part II
NOTE ON ENDNOTES:
This translation involves three types of footnotes. There are the author’s footnotes from the French article. There are “translator’s explanatory notes” which provide the anglophone reader with explanations of categories specific to the French system. And finally, there are “translation notes” which focus on points that are of interest from terminological, translation theoretical and similar points of view.
TRANSLATOR’S EXPLANATORY NOTE:
Regarding the distinction Ecalle invokes between “unemployment insurance and social security in the legal sense”: in France, “social security in the legal sense” does not cover all social risks (risques sociaux) that could result in unemployment. Instead, it is the category of “social protection” (protection sociale) that covers these social risks more broadly. So, while some risks entailing the need for unemployment insurance would fall under the category of “social protection,” others would fall under the category of “social security,” the distinction being–as Ecalle states–an artifact of the historical emergence of the two categories in France. This explanation is based on an article by Etienne Marie, a government official who worked in the French social security system for decades and headed the National Family Allowance Fund (Caisse nationale des allocations familiales, CNAF): Etienne Marie, “Anciens et nouveaux risques sociaux,” Vie Sociale, 2, no. 10. 2015: 173-202. https://www.cairn.info/revue-vie-sociale-2015-2-page-173.htm. ↩︎
AUTHOR’S NOTE :
The Social Debt Redemption Fund (CADES) receives tax revenues, particularly the social debt redemption tax (CRDS, Contribution au Remboursement de la Dette sociale). These tax revenues finance both the repayment of the capital and the payment of the interest on the debt. While the interest payments represent an expenditure that reduces the national balance, the same is not true in case of the repayment of capital, which is a financial transaction (opération financière) directly entered in the nation’s balance sheet and is thus neutralized in estimates of the public balance. Overall, the repayment of capital neither impoverishes nor enriches CADES. ↩︎
TRANSLATOR’S EXPLANATORY NOTE:
The first version of the Bismarck or social health insurance model was implemented in 1883 by Otto von Bismarck, with the aim of providing healthcare to industrial workers and their families. Under the model, people pay a fee to a fund which then pays for their healthcare, this last being provided by either state-owned or private institutions. This is a limited model since only those who pay the fee have health insurance. The Bismarck model is opposed to the Beveridge model (see below). ↩︎
TRANSLATOR’S EXPLANATORY NOTE:
It is worth underscoring here the key difference that Ecalle invokes in this section, between “social contributions” (cotisation sociale) and other types of taxes: taxes (impôts, taxes, contributions) are unrequited payments, that is, their payment does not generally entail any proportional social benefit (prestation) to the taxpayer. Social contributions (cotisation sociale), by contrast, entail the possibility of such social benefits. See also the “translation note” at the end on these terms, and the problems posed by their current English translations. ↩︎
TRANSLATOR’S EXPLANATORY NOTE:
The basis for the Beveridge model is the 1942 Beveridge Report, a government report put together by British economist and social reformer, Baron William Beveridge. The Beveridge model of health insurance considers healthcare to be a human right. Everyone is provided healthcare under this model, and the costs are covered by taxes. The model is thus universal and solidarity based. The Beveridge report was influential in the constitution of the welfare state in the UK. ↩︎
TRANSLATOR’S EXPLANATORY NOTE:
Note that in France, family benefits (prestations familiales) is a wide category of benefits offered to families by the state. One of these family benefits is the family allowance (allocation familiale), which is paid by the state to families that reside in France and that have more than one child. ↩︎
This section presents an interesting problem from the terminological point of view.
Note that, as far as terminological sources go, I have in general followed the translations proposed on the website of Cleiss, “the liaison body between the French social security institutions and their foreign counterparts for the implementation of European Regulations and bilateral or multilateral social security agreements.” I have also used English translations proposed on various EU websites (Eur-Lex, ECB, IATE), the OECD website, UN Term and others.
The terms for different forms of taxes and payments to the state are worth clarifying at this point. In French, there are (at least) four terms to be considered when speaking of taxes. The following is based on an explanation that appears in an article in the newspaper NouvelObs.com:
(1) impôt = “tax” (this is the typical translation, found on the Cleiss website, in European Central Bank documents, etc.). Within the French taxation system, the impôt is a compulsory and “unrequited payment” to the government that is mainly used to finance public expenditure. Note that the OECD uses “unrequited payment” here to mean that the impôt payments do not yield any proportionality of benefits to the impôt payer.
(2) taxe = “tax”; also “charges” or “duties” (the first is used on the Cleiss website; the other two are used in EU legal documents). In case of ITAF (impôts et taxes affectés) which is a specific type of tax, the Cleiss website uses the translation “earmarked taxes”. A taxe is basically an indirect impôt: people pay impôts directly to the government (e.g. impôt sur le revenu is income tax). A taxe, by contrast, is paid indirectly (e.g. taxe sur la valeur ajoutée is value added tax and is paid by a customer who buys a product in a shop; it is only subsequently transferred to the government).
(3) contribution = “contribution” (used on the Cleiss website, for example). This gets confusing in English because the same English translation is used for the fourth term below, i.e. cotisation. Yet there is a difference between contribution and cotisation that is crucial to Ecalle’s discussion here, as has been mentioned. A contribution (referring to the French term here) is essentially a type of tax (impôt) that is earmarked for a specific type of government expenditure. So, for example, the CSG (Contribution sociale généralisée) is translated as General Social Contribution in English. However, this is not a cotisation (see below). It is an impôt in that it is an “unrequited payment” in the OECD’s sense of this term (see 1 on impôt in this footnote).
(4)cotisation (sociale) = “(social) contribution” (used in EU legal documents with the adjective “social”; used without this qualifier on the Cleiss website). The cotisation is what one might term a requited payment: in paying it, one is entitled to certain social benefits, for example pensions, health insurance, maternity care, basic old-age insurance.
The argument that Ecalle makes here is that the cotisation, strictly speaking, pertains to the logic of the Bismarck model, limited to those who pay. Contributions (being taxes) pertain to the logic of the Beveridge model of solidarity and universal rights. In the English, things get confusing because the same term “contributions” is used to translate both the French terms cotisation and contribution. ↩︎