Family allowance benefits for all reinstated

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The French Government has recently reviewed its position regarding the means-testing of eligibility for family allowance benefits. In June 1998, it decided to reverse the measures in this area it had adopted a year previously and to reduce the income tax allowance allocated to families - much to the satisfaction of trade unions.

Before the current Socialist-led Government came to power in June 1997, family allowance benefits (allocations familiales) were allocated to all families with a minimum of two children, irrespective of income. However, one of the early decisions of the new administration was to introduce means-testing, making households with a monthly income exceeding a certain level ineligible for the family allowance (FR9707156F). Family associations - mainly under the umbrella of the National Union of Family Associations ( Union nationale des associations familiales, UNAF) with the support of the Family Allowances Fund (Caisse d'allocations familiales, CNAF) - have since opposed this measure as an attack on the "last remaining universal benefit" available to families. As a result, despite the fact that this measure has proved extremely popular (opinion polls showed up to 60% of people in favour), the Government has found itself isolated from an institutional point of view.

In order to extricate the Government from this situation, the Minister for Employment and Solidarity, Martine Aubry, agreed to qualify this measure as "transitional" in the November 1997 bill on the financing of the social security system (FR9712184F), which implemented the means-testing. However, the demands made by family associations and the social partners remained powerful and, ultimately, the Prime Minister, Lionel Jospin, chose to reinstate universal family allowance benefits and reform the dependant's tax allowance. He has thus armed himself with the means to relaunch a "left-wing" family policy with the support of trade unions and family associations.

The Government's new family policy was announced on 12 June 1998 at the third "national conference on the family", bringing together Ministers with trade unions, employers' associations and organisations representing women, families and parents.

The new face of family policy

A year after the decision to means-test the family allowance benefit, the Government's new family policy offers a more expanded vision of the family, whose role in society is recognised - "even though the modern family is diverse and takes many varied forms ... its presence in our society has without a doubt never been so essential," stressed Mr Jospin. The principal measure announced is the decision to reinstate - in 1999 - family allowance benefits for all households with at least two children irrespective of income and, as a counter measure, to reduce the income tax allowance offered to families. In effect, the Government has opted to lower the ceiling for the dependant's tax allowance rather than tax or means-test family allowance benefits.

The dependant's allowance (quotient familial) is a mechanism whereby taxable income is divided into a number of units which are allocated according to a family's particular make-up. In effect, the dependant's allowance is a tax benefit aimed at ensuring that everyone is taxed fairly. Guided by the "same standard of living, same tax" principle, the allowance takes into account the fact that two households each with an income of FRF 15,000 per month do not have the same standard of living if, for example, one is made up of an unmarried man and the other of a couple with two children.

With this in mind, the taxpayer's income is weighted according to the number of mouths that he or she has to feed by the allocation of a certain number of "tax units." One unit is allocated for each adult, a half unit each for the first and second children and a whole unit for each child thereafter. Therefore, a couple with no children gets two units, a couple with two children three and a couple with three children four units and so on. The dependant's allowance was capped in 1982 to limit the favourable effects on better off families, but has been constantly revalued upwards ever since. The Government has now decided that the maximum tax benefit for a half unit will be cut from FRF 16,380 to FRF 11,000 in 1999. Overall, however, some 100,000 households will benefit because the reinstatement of family allowance benefit from 1999 will outweigh this hike in income tax.

Boosting the progressive nature of income tax

The reform of the dependant's allowance will affect around 570,000 households, far in excess of the 310,000 that saw their family allowance benefit cancelled from March 1998. When implemented, this reform will affect a larger proportion of households with higher incomes, but by the same token will not penalise the "upper middle classes" as much. In the taxation system, the dependant's allowance aims at offsetting the progressive nature of income tax scale to favour married couples and families with children. The table below compares the financial impacts on families of means-testing family allowances and of lowering the dependant's tax allowance.

Impact on public finances

Public finances will lose out since the reform of the dependant's allowance will produce only FRF 3.1 billion in supplementary income tax revenues - FRF 1.7 billion less than generated through means-testing of family allowance benefits. In addition, the Government will have extra expense rising progressively to a cumulative yearly total ofFRF 3 billion. In reality, it is a question of income redistribution within the most advantaged sectors of the population by way of the tax system. Martine Aubry qualified this measure as "fair", since it has less effect on "the mid-to-high income bracket", and maintained that the reform of the dependant's allowance would only lead to a 0.037% increase in statutory deductions from income - which totalled 46.1% in 1997.

Reactions

The Government's new policy was seen as limited in some quarters, and the CFE-CGC union confederation stated that the Government "was taking away with one hand what it was giving with the other". In addition, the outcome of the June conference on the family did not have the unanimous backing of family associations. The Families of France Federation, (Fédération Familles de France), a member of the UNAF, walked out of the conference, rejecting outright the reform of the dependant's allowance. This federation, which has the reputation of being very conservative, did not wish to "give its backing to the lowering of the ceiling for the dependant's allowance nor to a policy which consists of delivering speeches on the glory of the family while picking its pockets". This walk-out has damaged the cohesion of UNAF and indicates internal rifts.

However, satisfaction was the prevailing feeling among both trade unions and family associations. The president of UNAF, Hubert Brin, greeted the abandonment of means-testing in favour of a reform of the dependant's allowance as a "good agreement", and he considered that "the Prime Minister had given back some meaning to the family and in doing so to family policy." The CFDT and the CGT-FO unions shared the same satisfaction. The president of the CFTC confederation, Alain Deleu, was pleased that the Government had abandoned means-testing but was on the other hand totally opposed to any attacks on parental education benefits (Allocation parentale d'éducation, APE) for a second child.

Commentary

The implementation of means-testing for family allowance benefits which was decided - in the absence of consultation - on 19 June 1997 has been abandoned and counterbalanced by a decrease in the dependant's allowance. Both family associations and trade unions urged the Government to repeal the measures decided in June 1997 and, having explored various options, the Government opted to decrease the dependent's allowance rather than tax family allowance benefits or allocate them on a means-tested basis. Over and above this reform, the concrete effects of the new "left-wing" family policy are limited to a sprinkling of measures and the assertion of principles. (Mouna Viprey, IRES).