During the 2007 French presidential campaign, EDHEC presented a social security funding reform to all the candidates running for the French presidency, designed to improve employees' spending power and in the longer term, to create jobs. Today, with the cost of living increasingly at the forefront of people's minds, EDHEC decided to remind the President of its proposal for a new type of VAT that it has called the Pro-Employment VAT. This was backed by a national press campaign with a letter addressed to all the Members of Parliament and social partners.

EDHEC is more than ever convinced of the value of its proposal. In a context where the national deficit has led to curbs on public spending, it is nonetheless still possible to introduce a measure with a neutral budgetary impact to improve employees' purchasing power, which would have no impact on the competitiveness of businesses or on the balance of Treasury accounts.

In concrete terms, EDHEC's proposal would lead to a reduction in the social contributions paid by employees, with the shortfall funded by a rise in VAT. Since total spending subject to VAT is greater than the total payroll, the VAT increase would be less than the increase in salaries due to the subsequent reduction in employee contributions, and this would result in a rise in the spending power of the working population.

EDHEC calles this measure the Pro-Employment VAT for several reasons:

     1. While protecting the spending power of people who receive income benefits, it would give employees additional spending power. The Pro-Employment VAT would therefore act like an extra employment tax credit, which, unlike the existing employment tax credit, would cost the State nothing.
     2. By increasing the French population's real income, the Pro-Employment VAT would generate more growth and therefore new jobs.
     3. It would allow the French employment policy to be financed by imports and offshore production.
     4. Finally, from a long-term perspective, unlike the sharing out of value added by businesses which had an adverse effect on employees, the Pro-Employment VAT would give them back their spending power without penalising the competitiveness of business organisations.

Unlike other so-called social VAT proposals, this measure would not present a major macroeconomic risk nor a risk of economic recession as it would not reduce household spending power. The risk of higher inflation would also be averted since no increase would be required in gross salary to maintain purchasing power.

Initial evaluations of the macroeconomic impact of introducing EDHEC's measures confirm the interest of a Pro-Employment VAT. In the long term, we would expect a positive net effect on GDP in terms of volume (+ 0.3%) and on employment (+ 108,000 jobs created), without endangering the balance of public finances, since our scenario also respects ex post the need for stability with respect to the public deficit. The greatest impact, however, concerns the substantial real' net salary increase, which would provide households with an 2.6% rise in spending power in the long term.