Financing the social state: what if we relied on the wealth attached to the land?

March 24, 2022







With a government debt of 116% of GDP at the end of 2021, whose most recent increase is due to Covid, but whose trend has been positive for decades, the question of its funding and our government deficit is recurring.

It must be admitted that we are not in a position to finance our social model in a sustainable way. It should not be questioned, for it has not been unworthy: it has contained income inequalities after transfers and finances the health and education of the French. But, poorly funded, it weighs labor (social contributions), capital, especially through production taxes, and through the deficit on future taxes.

This triple financing method made sense when social security was created: France after the war was in full employment in the post-war thirties; the return on capital was high in connection with the reconstruction, and it had little effect on investment because we were in a period of economic recovery; and demographic and economic growth and moderate inflation made it possible to go into debt without much worry.

At that time, it would never have occurred to anyone to finance social security on the value of land, although France has historically always had most of its wealth in this form: agricultural land and real estate represented about five times GDP between the 18th. 19th century, and it is still true today, where especially urban properties carry the bulk of this value and no longer land. On the contrary, this value was at its minimum in the post-war period: wartime destruction; Demography has not yet revived and high interest rates explain that real estate and land were only worth one and a half times at that time.

In 1950, it made sense to only ask for productive factors, capital, and labor. Since then, the data on the financing of the social model (which extends far beyond pensions and unemployment benefits) have been completely reversed: 70 years later, real estate and more specifically land have captured the nationality of wealth. Land alone represents three times the country’s GDP, 7,000 billion euros, of which just over 4,000 billion for households and 2,000 for businesses, and almost one trillion for local authorities, the state and non-profit organizations (the Church, associations).

The current funding on the productive factors is hampering the country’s growth and attractiveness. It weighs too much at work (social contributions). This makes the net salary too low in relation to the wage costs. The consequences are harmful in the long run. To name just two: A young, largely free graduate, tempted to make money on their diplomas abroad, and at the bottom of the payroll are taxes that can create too small pay rises, attractive or even inactivity traps. At the same time, production taxes economic activity at one of the highest rates in Europe, which does not make the environment conducive to investment. In addition, the production capital installed in France per. per capita, the lowest of the largest European countries: Italy, Germany and the United Kingdom have a higher capital per capita. inhabitant. Finally, the third way to finance the social model is through deficits: Debt rises in a spiral, creating fears of an increase in future taxes, affecting the future profitability of investments.

However, taxing real estate investments is not the solution: it creates the same incentives as taxing business capital: Reducing returns is not advisable. On the other hand, the land part is the quasi-perfect tax base par excellence: this asset is not the result of an effort because it is not a produced asset. Moreover, it does not cross borders: you do not travel with your land in another country. Finally, the basis is broad, and these 7,000 billion represent more than 200,000 euros of potential wealth per capita. household. Low rates therefore ensure significant tax revenue.

Moreover, all indications are that this wealth is very poorly distributed: it is not just a matter of main housing, although it is basically the 30% of the poorest households who are not owners and would not be subject to this tax. . All land must be taken into account: private rental land, of which a recent INSEE study has shown the very high concentration[1] ; luxury second homes see their prices defy the imagination and accumulate in the property of billionaires; vineyards and forests are important and highly tax-free shares in cultural heritage portfolios, and even agricultural land is, contrary to the image of the small farmer, subject to speculation and concentration. Farmers are a very heterogeneous category, and the average prosperity exceeds the leaders and so-called higher occupations, when it averages more than 900,000 euros, and which is now approaching two million for the richest 10%. In Sweden, it is possible to measure the value of the various components of the wealth of the richest. It turns out that the proportion of land alone (in real estate, this excludes the value of buildings) reaches 25% on a par with the top 1% of the richest, combining forests, agricultural land, housing and land of companies owned own ); and it excludes the land component of shareholdings, of which the top 1% owns a very large share.

With the resources from a basic tax of 1%, it would be possible to remove three anti-economic taxes in return: taxation of rents, which penalizes renovations and discourages the rental of individuals, notary fees (transfer right for remuneration), which tax mobility and therefore economic dynamism and finally, the property tax, which is partly based on the building and punishes those who renovate or enlarge their property. With a tax of 2% and a little progressiveness, it is possible to recover an additional 60 billion to lower social security contributions and production taxes.

In both cases there is a give and take; -one Something for something : help young people, thanks to the land rent, who have enjoyed much of the economic situation, tariffs and urbanization, but without the effort has much to do with it. It is a major project that needs to be opened up, but which is imperative: the deficits do not disappear because the taxation of the Social Charter is based on a foundation that erodes and affects our competitiveness. The French have preferred real estate and land and have seen their wealth grow very rapidly in this area, but it is now necessary to prepare for the future and redirect their savings towards employment, mobility and innovation.

Foreign experiments have been carried out, they have a history rooted in political economy. The principles we defend here have been endorsed by the greatest economists, from Smith to Ricardo, from Walras to Modigliani, Solow and Stiglitz, from the most liberal to the Social Democrats, from Northern Europe (Estonia) to the hemisphere. Wales in Australia, South Africa, Colombia), from East (Singapore) to West (Pennsylvania), determined in various forms, and whose lessons are not easy to generalize directly in France, but which show the universality and timelessness of the principles to be implemented .

Studies need to be carried out to collect data to measure the value of land and especially building land: it is not overly complicated, much less than the valuation of real estate, because these are more heterogeneous than land that has a more homogeneous and progressive potential value in the territory. Data is multiplied by the emergence of big data, giving hope of achieving more and more accurate values. It will then be necessary to create the tax instrument at a low rate and in return to abolish the other taxes on real estate in order to ensure the citizens the justice of this reform; and finally to proceed gradually but surely with this fiscal balance of the productive factors towards the earth. The construction site of a five-year period, no doubt, just to start operations.

Alain Trannoy and Etienne Wasmer recently published Earth’s great return in inheritance, and why that’s good newsOdile Jacob, 2022.

[1] According to the study by André M. and Meslin O. (“And for a few more occasions: Survey of household property ownership and property tax redistribution profile”, INSEE), 3.5% of households own 50% of rental housing owned by individuals.

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