MARKET MOVER - BNP PARIBAS - Investment Services India

inflation rate is calculated excluding taxes on
consumption, the rise should have no impact on this
measure of inflation (unless providers raise their
prices beyond the VAT tax hike).
Most other measures taken to reduce tax loopholes
will affect household income tax, taxes on savings or
social contributions – none of which are included in
the CPI.
Reducing the health care deficit…
None of the measures included in the pension reform
has a direct impact on inflation. The other major
cause of the deficit is health care, since the share of
health care in total household consumption is on the
rise in France (as elsewhere). Health care costs
amounted to EUR 2,724 per person last year, the
bulk of which was financed by social security (75.5%,
Chart 3). Public financing of health care amounts to
6.5% of GDP.
In order to reduce the social security deficit, further
tightening of rules on health care reimbursement will
be implemented next year, according to reports in the
media. The changes should generate EUR 2.5bn in
2011, which compares to a projected social security
deficit of EUR 12bn for 2010. The economic
slowdown has reduced the pace of increase in health
care expenditure (as some people have cut back on
poorly reimbursed, non-urgent spending such as
dentistry or glasses).
The prices of some goods (medicines) and services
(especially biological tests and radiological
examination) will be cut but the reductions will be
partially offset by an increase in the standard price of
a doctor's examination (from EUR 22 to EUR 23 on
1 January 2011). Overall, the measures will push CPI
inflation down by about 0.06pp. These measures will
be implemented progressively over the course of
2011, as has been the case this year.
The share of standard health services reimbursed by
social security (i.e. excluding hospital or care for
chronic and severe diseases) will be reduced from
70% to 69.5%. The share paid by private insurers will
thus rise from 30% to 30.5%. It is likely that drugs
which are currently reimbursed at 35% by social
security will be reimbursed at 30% only. The HICP,
unlike the CPI, does not capture the full price of
health goods and services but only the proportion
which is not reimbursed by social security. As a
result, the HICP will not benefit as much from lower
prices for health goods and services as the CPI (this
is the main source of divergence between the two
measures of inflation).
Higher contribution rates for social security,
especially for accidents and sickness that occur in
13.8%
Chart 3: Health Care Financing in 2009
9.4%
Source: Le Figaro
1.3%
75.5%
State
Soc. Sec.
Priv. Ins.
the workplace, will result in a EUR 0.8bn increase in
receipts. This will come on top of the natural increase
in social contributions paid by private companies;
these should reach about EUR 3.0bn in 2011, up
from about EUR 2.0bn this year on the back of
increases in employment and wages.
…will also increase the cost of private insurance
A significant share of the social security savings will
result in higher costs for private health insurers,
which cover about 60% of the expenditure not
reimbursed by the public system. However, this
should be compensated by lower prices for some
goods and services.
Nevertheless, private insurance companies will have
to raise their prices (partly paid by employers in large
corporations). A favourable tax regime has been
available for private health insurance, with most
players taking advantage of it. This is one of the tax
loopholes that will disappear in 2011, adding
EUR 1.1bn to insurers’ fiscal burden (and to CADES
income). Overall, private health insurers may have to
hike their rates by 5-8% next year. This would add
around 0.09pp to headline CPI (private health
insurance has a 1.05% weighting in 2010 and this
will rise over time), or 0.10pp to the HICP (where the
weighting is 1.14%).
Altogether, the new measures should result in a
0.26pp contribution in headline CPI inflation in 2011,
raising it from 1.13% to 1.39%. The increase should
be limited to 0.16pp for ex-tobacco CPI, which would
reach 1.32%. The fiscal impact on the headline HICP
is more important at 0.35pp. The 1.5% harmonised
inflation rate we expect would nevertheless be one
tenth below that of the eurozone, which also
incorporates the inflationary impact of fiscal policies
in different countries and higher contribution of food
prices.
Hh
Total:
EUR 162.4bn
Dominique Barbet 23 September 2010
Market Mover
13
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