On Friday morning last, there was a queue outside the Apple store on the Champs Élysées in Paris, as eager Christmas shoppers sought out their watches and iPads.The following morning the shop, like the rest of the city’s main thoroughfare, was closed and boarded up as shoppers gave way to riot police, and the infamous “gilets jaunes” took to the street once more.
The reasons for the protests are myriad; some lay the blame at the feet of corporations such as Apple and the drive towards globalisation; others pinpoint it to the decline of rural communities, a decrease in purchasing power and, more specifically, an increase in the cost of diesel.
From afar, many have looked on at the scale of the protests, which brought many of France’s larger cities to a halt over five consecutive Saturdays, with puzzlement.
But maybe we share more than you might think with the yellow-vested protesters.
Like France, many of our rural localities are in decline; closures of post offices have been rampant across France, and have recently spread to larger towns such as Clermont-Ferrand. Here in Ireland, An Post is to close about 160 branches, many in rural communities, while attracting jobs to locations outside urban areas remains a challenge; there are now fewer people working in Offaly and Roscommon than there were in 2006.
And like France, where about half of workers pay no income tax, Ireland too has a large cohort outside the tax net. Some one million income earners won’t pay any income tax (or about 37 per cent of income earners) next year. Cognisant, perhaps, of the limited revenue that can be generated from lower-income workers, and aware of the political cost of taxing the lower paid, consecutive governments have opted to keep as many people out of the tax net as they can.
Ireland is now one of the best places in the developed world for a low-income worker to pay taxes
This means introducing a new tax – such as we saw with the failed introduction of water charges which led to widespread protests in Ireland, or with the move on diesel that sparked the gilets jaunes protests in France – is never going to be easy if governments aren’t aware of the disproportionate impact they can have on lower-income workers.
Where Ireland and France might diverge, however, is when it comes to the ultimate tax burden low-income workers have to endure. There is no doubt that France is a high-tax economy: recent figures show that the country’s tax as a percentage of GDP hit 48.4 per cent in 2017. Compare this to just 23.5 per cent in Ireland.
Social charge
And low-income workers don’t escape the burden in France. Yes, about one in two may not pay income tax in France, but they do make a hefty contribution, in the form of a social charge, which is used to pay for the country’s public service benefits, such as hospitals, low-cost creches and state pension. This translates to a contribution rate of between 20-23 per cent, and means that on an income of €18,000, a worker pays tax at a rate of 21.4 per cent in France, and gives up €3,886 of their income.
Contrast this with Ireland, where about 770,000 pay neither USC nor income tax, and when they do, it's at a very low rate. Indeed, Ireland is now one of the best places in the developed world for a low-income worker to pay taxes. Someone earning €18,000 a year pays an effective tax rate of less than 3 per cent – or just €480 in tax – in Ireland, for example, according to figures from the Irish Tax Institute.
And it’s not just about tax. As one of his concessions, France’s president, Emmanuel Macron, signalled earlier this month that he would increase a welfare payment made to workers on the minimum wage by €100 a month from January 1st.
This will, in effect, bring the gross minimum wage (known as the salaire minimum interprofessionnel de croissance, or SMIC) in France up from €1,498.47 to €1,598.47, or by almost 7 per cent, bringing it close to the level enjoyed in Ireland (€1,613.95), and pushing it into third place in the EU’s minimum wage league table, behind Luxembourg also.
With such an increase, you might well wonder why the French are set to continue to protest. But there are a couple of reasons why it’s worth less to French workers than it might first appear.
Purchasing power
The first is when we revise the aforementioned rate to take into account the cost of living, or purchasing power parity. When we reflect how far the minimum wage will go towards goods and services, the French rate actually falls to €1,377. In Ireland, with its heady housing market, the wage actually falls to less than that, at €1,287; but this is still worth more to an Irish worker as they get to keep more in their pocket.
Yet again it comes down to the thorny issue of tax, as both of the aforementioned French minimum wage figures are gross. When we look at the "net" rate of the minimum wage, or the amount people actually get to keep in their pockets, the current gross rate falls to €1,184.93 in France, as they're giving up a staggering 20.9 per cent to the Trésor public.
Compare this with Ireland, where someone on the minimum wage is currently earning €1,613.95 a month (or €19,367 a year) – and gets to keep €1,522 of it a month, which translates to an effective tax rate of just 5.7 per cent.
And if you revise the wage again, to take into account both tax and the cost of living, the French rate will fall to about €1,101 – less again than Ireland.
Such high taxes might have been palatable when France could deliver its public services. But at a time of overcrowded or unavailable public transport; diminuition of public services such as post offices and libraries; and changes to the state pension, the cry from the gilets jaunes for reform becomes more understandable.
