Analysis: The benefits of Macron’s pension reform could hurt society

TradingTwist, January 11, Paris – Plans by President Emmanuel Macron’s to raise the retirement age by two years may, over time, result in modest economic and financial gains, but they come at the expense of upsetting unions and aggravating employees who have already been hurt by the inflation issue.

Elisabeth Borne, his prime minister, sold the reform on Tuesday as a practical need rather than a political choice in order to maintain the pension system’s viability. Most French people will have to work until they are 64 under the proposals. That doesn’t bring France in line with the majority of other European nations and falls short of the 65-year retirement age that Macron had pledged during his re-election campaign last year.

However, unions wasted no time in denouncing the increase as a cruel assault on France’s welfare system and said that a first round of statewide strikes would begin on January 19 and that other strikes would certainly follow.

In order to get the backing of conservative MPs, Borne stated that the government will speed up plans to increase the length of the pension contribution period to 43 years in exchange for concessions such a minimum pension payout of 1,200 euros per month.

According to economist Mathieu Plane from the OFCE research organisation, the change is most likely to have an impact on those who entered the workforce early and will strike the middle class particularly hard at a time when many are dealing with high inflation and a cost-of-living problem.

The working middle class believes that the same individuals are always on the hook for the bill.

Trade unions are outraged and promise a fierce street battle to stop the reform. The risk for Macron’s is whether they can take advantage of the rising tide of popular unrest. The measures were dubbed “one of the most savage reform packages of the previous 30 years” by moderate CFDT union leader Laurent Berger.

The government promises not to give in. It’s not just money on the line for Macron’s, a political outsider who promised to shake up the nation’s sluggish political system when he first took the oath of office in 2017, but also his reputation as a reformer.

Expert in social dialogue Remi Bourguignon said: “For the executive, the problem is also symbolic: it must show France’s capacity for transformation in relation to the European Union.”

The change gives Macron’s pledges to reduce the budget deficit to acceptable EU levels by the conclusion of his presidency in 2027 some much-needed legitimacy.

According to projections from the Labour Ministry, delaying retirement by two years and extending the pay-in period would result in an extra 17.7 billion euros ($19.0 billion) in yearly pension contributions, enabling the system to break even by 2027.

According to Capital Economics consultant Andrew Kenningham, France’s public debt ratio, which was 113% of GDP in mid-2022 and is anticipated to stay at that level for the next ten years, would be relieved of some of its burden.

According to government projections, the reform will result in 300,000 more workers in the labour force by 2030 than it otherwise would have, increasing GDP by 0.1 percentage points.

According to Borne, “when there are more elderly citizens working, we raise our collective wealth, there is more tax, and these resources may be used to lower our budget deficit and support policy goals like health, education, and environmental transition.”

To its EU allies and investors, Macron’s administration has made a commitment to reduce the budget deficit from 5.0% of economic output in 2017 to below the EU ceiling of 3% by 2027. But those plans, which the IMF argues is too slow, depend on the government implementing changes like a pension overhaul that strengthen the labour market and restrain public expenditure.

Standard and Poor’s, a credit rating agency, warned France last month that a downgrade could occur due to a lack of changes to ease the country’s fiscal burden.

The cost of repaying the national debt, which will likely soon exceed 3 trillion euros, has risen to become the state’s second-largest budget item this year behind education due to rising interest rates.

According to OFCE’s Plane, reform would only result in the promised savings if the labour market could accommodate the additional workers, which is far from certain in a nation with unemployment rates over 7%.

According to Plane, “the risk is that more people become unemployed, and if that happens, we don’t get the savings.”

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