Business aid is costing us a fortune!

Business aid is costing us a fortune!



The Ires has just published an exciting work that sheds harsh light on one of the gray areas of our public accounts: how much is the total aid, subsidies and other tax loopholes received by companies? After many methodological caveats, the conclusion is clear: it can be estimated, in 2019, at the equivalent of 8.4% of GDP, a huge amount.

Researchers at the University of Lille can only provide an estimate because the more than 2,000 support mechanisms from which French companies benefit are distributed in the greatest opacity.

It is therefore difficult to quantify their total amount and even more to know the distribution of who receives how much, a subject which the report does not rub. As the authors readily acknowledge, there cannot be perfect objectivity in carrying out a costing ” as the data are disparate.

It is therefore appropriate to begin by specifying what we are talking about.

The aid accounted for corresponds to transfers of wealth to companies that do not give rise to any consideration. Thus, the public order is not counted because the public power is enriched as much as it spends. State participations or public guarantees are not taken into account either.

The added data correspond to budgetary expenditure in favor of companies, reductions in social security contributions granted and tax derogations, the famous “tax loopholes” whether they are active or “downgraded”. In the latter case, it is about certain niches which end up being integrated into common law and disappear from the list but from which companies still benefit.

An explosion of amounts

Once this long compilation work has been completed, the report delivers three key pieces of information. First, the exorbitant amount of aid received by companies, 205 billion euros, the equivalent of nearly 8.5% of GDP, or even 41% of the state budget!

Growing Corporate Tax Giveaways Force Taxing Individuals More

The bulk comes from tax loopholes (109 billion including 48 billion downgraded loopholes), 64 billion from reductions in social security contributions and 32 billion from budgetary expenditure. If we want to be careful about the weight of downgraded niches, we still end up with total aid at 6.5% of GDP. And the long-term dynamic remains the same.

Indeed, historical analysis highlights the uninterrupted progression of these transfers of public wealth to businesses, which amounted to only 2.6% of the wealth produced in 1979. Aid began to explode from the beginning of the 2000: the strongest period of hyperliberalism, between 2000 and 2008, corresponds to when companies increasingly pumped public wealth in their favor.

Finally, how were these large largesse financed? The study underlines that part of it could be thanks to an increased weight of household taxation. The growing tax breaks to companies force individuals to be taxed more: income tax represented a quarter of total state revenue in 2019, a share up by more than 7 points compared to 2007. And as this does not enough, the rest is financed by a rise in public debt which acts as a mechanism for absorbing the cost of public aid to companies.

Counterproductive policies

The document then discusses two specific business support policies. The first concerns reductions in employee contributions and their supposedly positive effects on employment. A good part of the chapter is devoted to showing that the theoretical and empirical foundations of such a link are non-existent.

The only result that seems proven, on the other hand, consists of a substitution effect: “ the relative fall in the cost of labor encourages companies to use (relatively cheap) labor rather than capital “. Clearly, this discourages companies from investing. And here, paradoxically, is one of the causes of the lack of competitiveness of French companies, which lose in innovation and long-term productivity what they gain in the immediate reduction in labor costs.

Academic research shows that the best incentive for private innovation is through public procurement, with a much stronger effect than subsidies and tax incentives

Innovation is also the second focus of the study. While the French mechanisms for public support for research have continued to progress (with in particular the flagship product of the Research Tax Credit), French research is making little progress.

Worse : ” it appears that the South Korean, Japanese, American, Chinese and German public sectors each spend less than the French public sector (in % of total expenditure) and yet present overall levels of R&D expenditure (in % of GDP) clearly superior to France “.

How is this explained? The basic question is as follows: what is the use of aid for innovation in a country which is deindustrialising? Pouring more and more aid for innovation into an ecosystem that is shrinking to a trickle is not effective. A simple calculation shows it:

If France had the industrial structure of Germany while retaining the research intensity of companies located in France, the research effort of the private sector would have been 2.69 % of French GDP. In other words, the French private sector would spend more than Germany on R&D by nearly one point of GDP. »

In addition to being ineffective, this type of aid creates financial dependence on companies: removing them would have negative consequences in terms of jobs. In fact, academic research shows that the best incentive for private innovation is through public procurement, with a much stronger effect than subsidies and tax incentives.

The report finds the results of the latest book by researcher Mariana Mazzucato who observes, based on the Apollo mission, how much public procurement, including for risky investments, is very largely beneficial for innovation, even when the programs end up failing like the Concorde.

Conclusion of this work by Ires, public aid to companies costs the budget a fortune and feeds the public debt for an effectiveness that remains to be demonstrated. This report cannot be over-recommended to representatives of employers who regularly complain about the level of public spending and the debt. It contains a serious track of savings!

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