Savings: Livret A very expensive investment for the state


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With its net rate of income tax and social contributions, Livret A is a godsend for savers…but less so for the state, which costs several million euros each year!

Livret A is part of the family of regulated savings accounts, these savings contracts that the state oversees to operate. Like most of its counterparts, it has a net price tag. In other words, the interest received is not subject to income tax and is not affected by Social Security contributions. Pretty tax standing is a big cost to the state, even though the French have 56 million.

Livret A net of taxes and Social Security contributions

Currently, Livret A’s rate is 1% net, and will double to 2% effective August 1, 2022. In the question? High level of inflation, which already stands at +5.8% in one year in June. If the interest rate on Livret A remains insufficient to offset the price hike, it nonetheless has a major advantage, besides zero risk and immediate availability: its reward is net of income tax and social contributions. Unlike most other investments that have a “gross” rate, it is not subject to a flat 30% tax which mechanically reduces the real return of the savings contract.

Other contracts are also exempt from taxes on interest generated, and this is particularly the case for LDDS, LEP, or even Livret Jeune. However, Livret A remains the only investment intended for a very large audience, which is the reason for its success for nearly two centuries, as it can be opened unconditionally to any adult or minor resident in France for tax purposes. Conversely, the LDDS is for adult individuals only, the LEP also imposes a maximum reference tax income, and the Youth Handbook is only for people between the ages of 12 and 25.

Read also: Booklet A: What do the French really think of this core investment?

Regulated savings, a tax loophole that costs more than 1 billion euros a year

With 56 million Livret A accounts registered in 2020, this decade no longer has to prove itself. More than 8 in 10 French people own one. For the state, this deposit represents a significant cost, with a loss of profits estimated at 400 million euros according to the annual report on structured savings from the Bank of France. In detail, this is 128 million euros in loss of income related to income tax, and 270 million euros for uncollected social security contributions. But these numbers do not take into account recent changes in the Livret A rate, which rose from 0.50% net to 1% in February 2022, and will reach 2% in August. Thus the deficit will change sharply, and may reach the amount of 1.2 billion euros annually.

Moreover, the state budget relates not only to Livret A, but also other regulated savings contracts such as LDDS, LEP, Livret Jeune or even the old PEL. They are all exempt from income tax and social contributions, and their cost, in addition to that of Livret A, has already reached 1.177 billion euros in 2020. As revenue rises, the bill will rise sharply, with the same address as Livret A Thus, the LDDS rate will follow the evolution of the Livret A rate, Whereas the LEP which had a return of 1% in 2021 is currently 2.2%, and will reach 4.6% as of August 1, 2022.

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