Macron presses on with pension reform despite political cost

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This has been the second winter in a row when Emmanuel Macron has had to face strong popular opposition to his policies. A year ago, it was the yellow vests movement, triggered by a fuel tax rise, then a year later crippling strikes and protests against pension reforms.And yet, he seems to be getting his way. Both inside and outside the government the expectation is that the pension reform will be passed. “The protests are dwindling,” said Philippe Martin, head of the government’s Council of Economic Analysis.It is partly because the government has adapted its pension proposals. There are two parts to the reforms: streamline the system to get rid of 42 different profession-specific plans, and tighten the purse strings to eliminate a small funding deficit. Only the first part was envisaged in Mr Macron’s 2017 presidential campaign, hence the stiff opposition to the second, Mr Martin said.Under pressure, Prime Minister Edouard Philippe has pulled back from the idea of penalising retirement before the age of 64 and rewarding continued work. But in turn he has passed the buck to unions and employer organisations to find another way to improve funding by €12bn. Should they fail, the original policy may be back on the table.According to Professor Agnès Bénassy-Quéré of the Paris School of Economics, “the initial idea was very good but was then polluted by things that weren’t communicated very well”.Past reforms mean cost-saving changes are already programmed into future pension trajectories, in particular by indexing pensions to prices rather than wages. But frequent changes and volatile forecasts make it hard to explain the new proposals’ effects.The reform would “decrease inequality”, Mr Martin said. “But spending will be cut so somebody has to lose.” Pursuing both streamlining and cost savings at the same time “is very difficult”, said Jean Pisani-Ferry, senior fellow at the Bruegel think-tank, because it runs the risk that “everyone perceives that the name of the game is to make savings, not to have fairer rules”.
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France’s retirement system is expensive, costing 14 per cent of national income, among the rich world’s highest levels, said Jessica Hinds, economist at Capital Economics. But previous reforms have already reduced the long-term projected cost by 5 percentage points of gross domestic product since 25 years ago, according to Mr Pisani-Ferry. Any new savings will come through in 2037, when the younger cohorts to whom the reforms apply reach pension age, Ms Hinds added.If the government passes the changes, Mr Macron will have notched up another significant reform, following changes to the labour market, vocational training, social security taxes, children’s education, and sectors such as railways. The scale of change achieved in a nation often wedded to its ways puts the protests in perspective. But will the political costs be too high to have been worth paying? Mr Macron’s unpopularity at home is costing him allies — defections in parliament are whittling down his legislative majority — and giving rival parties wind in their sails ahead of local elections next month.Mr Martin said economic performance “will not be enough” for Mr Macron to get re-elected in 2022, “but if he doesn’t even have that, it will be very difficult”.The pension reforms “should be seen in the context of labour reforms” which pursued flexibility, said Ms Hinds. She thinks the new, more predictable points-based pension system “should make it much more likely that people change careers [and] should increase movement between sectors”.This was “consistent with Macron’s idea of individual empowerment, that you should be in charge of your life”, said Ms Bénassy-Quéré.If the reform passes, the government will see it as an agenda going to plan. “Never underestimate the reform appetite of Macron,” said Mr Martin.

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