Home Business Smic, taxes, rents… The cascading consequences of inflation on the French budget

Smic, taxes, rents… The cascading consequences of inflation on the French budget

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These are less immediately perceptible and known consequences of inflation, and yet they are also likely to influence household budgets. In France, many benefits, social assistance and other taxes depend more or less directly on the consumer price index (CPI).

In the wake of the publication of inflation figures in March, which rose to 4.5% over one year, its highest level since the 1980s, the Ministry of Labor also announced an increase in the minimum wage at 1er may be between 2.4 and 2.6%.

Exception

Including the increase of 2.2% in October, and that of 0.9% in January, this will therefore be the third revaluation of the minimum wage in less than eight months. In theory, this reassessment only takes place once a year, in January. But the labor code provides an exception: “when the national consumer price index reaches a level corresponding to an increase of at least 2% compared to the observed index” when establishing the minimum wage “immediately prior”the minimum wage is raised “in the same proportion” the next month.

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According to figures published Thursday March 31 by INSEE, the progression of the price index exceeded this threshold in March compared to November 2021, which was the reference month for the last revaluation. What therefore justify a new increase, of the order of 30 to 35 € net per month. However, the exact increase will not be known until mid-April, with the publication by INSEE of the final inflation figures.

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Revaluations that do not take place at the same time

With inflation that promises to be increasingly high for a long time, could other products or services be upgraded in the weeks and months to come? Yes, but not as mechanically as the minimum wage. To understand this, one must bear in mind the indexation mechanisms, which do not depend on current inflation rates, but on averages smoothed over several months. Thus, all social benefits, family allowances, RSA, basic pensions or even the activity bonus are set according to the evolution of consumer prices excluding tobacco, calculated on the last twelve monthly indices. .

→ READ ALSO. Inflation hits record high for more than 30 years in Germany and Spain

As the revaluations do not necessarily take place at the same time of the year, the level of the increase may differ according to the benefits. Basic pensions, for example, were upgraded on 1er January 2022 (up to 1.1%), while family allowances, the RSA, the allowance for disabled adults or the activity bonus, which are revised on 1er April, will see an increase of 1.8% for 2022.

According to Bercy, only the minimum wage benefits from an exceptional automatic revision clause in the event of excessive inflation. But political decisions can always change the situation along the way. In 2019, for example, the executive had decided not to follow the rule for calculating retirement pensions, by setting a revaluation lower than inflation. Since 2021, inflation indexation of basic pensions is again the rule.

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Increase in the rent index

Among the other instruments dependent on the CPI, the rates for savings accounts, such as the livret A or the livret de développement durable, are recalculated every six months on the basis of a clever calculation drawn up by the Banque de France, and partly based on the inflation rate of the last few months. On February 1, the passbook A rate fell to 1% for the first time in ten years.

Less well known, the reference rent index is also likely to increase with inflation, since it is calculated every quarter on the average, over the last twelve months, of the CPI, excluding rents and excluding tobacco. Each year, landlords can renegotiate their rent on the basis of this index. By way of illustration, a tenant who signed his lease in April could be imposed an increase of around 2% for 2022.

But if inflation is a priori favorable to them, the owners will not be the big winners of the rise in prices. At least from a tax point of view. Since 2018, the property tax has been reassessed each year according to the Harmonized Consumer Price Index (HICP) for November. Which for 2022 should lead to a 3.4% increase in property tax, its largest increase since 2000.

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