While public accounts are in the red, Michel Barnier has opened the door to a tax increase for “the wealthiest” and for “large companies”.
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Michel Barnier is counting on the wealthiest to straighten out public finances. The Prime Minister, who had said he wanted more “tax justice” during his appointment, he said on Sunday September 22 on France 2 “not to exclude that the wealthiest people participate in the national effort”According to the head of government, this effort could be made through “targeted levies” for taxpayers but also for “some large companies”.
A break with Emmanuel Macron’s tax policy so far. In a report published in July, theThe Court of Auditors thus considered that “the period 2018-2023 [avait] was marked by significant tax cuts, the impact of which is estimated at 62 billion euros in 2023″. Tax cuts that have contributed “to the deterioration of the public deficit”with a public deficit which could reach 5.6% of GDP this year and which has earned France a Brussels procedure for excessive deficit.
While the Prime Minister did not specify which measures and taxes might be targeted, he said he did not want to “further increase taxes on all French people”thereby effectively excluding “the most modest”, “those who work” and the “middle classes”. While the subject is explosive, Michel Barnier has several levers, from corporate tax to the “Flat tax” and income tax for the highest brackets. Avenues that Bercy, questioned by franceinfo, did not comment on.
Increase corporate tax
To reduce the deficit, Michel Barnier mentioned the increased participation of certain large companies, which have benefited from several rreforms on capital taxation since 2017 and the election of Emmanuel Macron. The corporate tax rate, levied on company profits, is thus passed from 33.3% in 2017 to 25% in 2022. In a note published on the website of the Court of Auditors, this measure would have cost 11 billion euros for the year 2022.
On France 2, Michel Barnier did not rule out an increase in corporate tax for the largest companies, while the mechanism brought in 58.5 billion euros to the State in 2023, according to the General Directorate of Public Finances. For economist Mathieu Plane, this increase could take the form of“an exceptional surcharge from a certain level of profits, a form of progressive tax rate”.
“We will also need to know whether this will be sustainable or not.”notes the deputy director of the Analysis and Forecasting department of the French Economic Observatory (OFCE), while France will have to make tens of billions of savings over several years to hope to bring its deficit below 3% of GDP in 2027, as it aims to do.
Freeze the income tax scale
While the income tax scale changes every year to take inflation into account – the government only waived this in 2012 and 2013 –Michel Barnier’s government is studying the possibility of freezing it, according to The Tribune And The Echoes. In other words, to de-index it from inflation and to no longer include price increases in the calculation of taxation. Which would lead to mechanically an increase in tax pressure.
According to The Echoesthis freezing of the scale could only concern the richest households, whose tax rate is 41% and 45% (or even those at 30%). “If wages increase but rates remain fixed, households will be taxed more. This is a technical and invisible path”explains Simon-Pierre Sengayrac, economist at the Jean-Jaurès Foundation. The latter estimates that the measure would bring in between 1 and 4 billion euros in tax revenue to the State in 2025 depending on the brackets concerned, based on an average inflation of 1.7%.
Raise the rate of the “Flat tax”
Implemented in 2018, the “Flat tax” is a psingle flat-rate tax of 30% on capital income (income from movable capital, dividends, property income, etc.). It aims to reduce the tax paid by the wealthiest taxpayers in order to encourage them to invest in the economy. In the previous system, the total taxation of the wealthiest taxpayers could reach 60.5%.
Rather than a suppression, an increase in the “Flat tax” could be considered by the government. According to the economic, social and financial report annexed to the draft finance bill for 2022, its implementation in 2018 cost the State 1.8 billion euros. For its part, the Montaigne Institute (a liberal think tank) had estimated that the elimination of the “Flat tax” proposed by the New Popular Front could bring in between 3.2 and 3.6 billion per year.
“Its removal would bring a fairly small gain”qualifies Mathieu Plane, who rather imagines an increase in this tax from 30 to 35%. A measure which could bring in “a few hundred million, or even a little more depending on the order of magnitude”.
Find other solutions
While the French electricity bill is expected to drop by 10% in 2025 due to the drop in the price of electricity on the wholesale market, the government could increase the domestic final consumption tax on electricity. This tax had been significantly reduced at the height of the energy crisis in 2022 (to just 1 euro per MWh). In February 2024, it had been increased to 21 euros/MWh in February 2024. Before the crisis, the TICFE amounted to 32.44 euros/MWh. In an opinion for the draft finance bill for 2023, MP Philippe Bolo (MoDem) estimated that this drop had represented “a loss of 8 billions of euros for the State”.
Among the savings avenues, Mathieu Plane and Simon-Pierre Sengayrac also mention tax credits (amounts subtracted from the tax amount), in particular the research tax credit (CIR). A mechanism designed to promote the research and innovation efforts of companies, which some consider to be a “tax loophole” that greatly benefits large companies.
Finally, could Michel Barnier be tempted to re-establish the wealth tax (ISF), which was replaced in 2018 by the real estate wealth tax (IFI)? A report by France Stratégie published in 2023 estimated that“in 2022, the budgetary cost of replacing the ISF with the IFI would probably be greater than 4 billion euros.”