Recent debates in French politics have intensified around the concept of ‘wasted’ money, particularly highlighted by LFI deputy Aurélien Le Coq’s remarks on tax loopholes. These loopholes, costing the state about 81.3 billion euros in 2023, include provisions like the Pinel scheme and deductions for charitable donations. While they aim to achieve specific social objectives, a significant portion of tax expenditures is concentrated in a few measures, prompting calls for systematic evaluations and potential eliminations of less effective provisions.
Money described as ‘wasted’ has become a hot topic in French politics, particularly with the recent comments from LFI deputy Aurélien Le Coq. During discussions on the national budget, Le Coq criticized the existing tax loopholes and asserted that these should be ‘conditional’ to enhance ‘social utility’ and prevent ‘fiscal stuffing.’
Tax Loopholes: A Burden of 81.3 Billion Euros
Tax loopholes, as defined by the administration or the Court of Auditors, are ‘derogatory tax provisions that place a financial burden on the state budget.’ Some of the most recognized examples include the Pinel scheme, which offers tax reductions on rental property purchases under certain conditions, set to be phased out by March 2025. Additionally, retirement savings plans allow for deductible contributions from taxable income, while charitable donations can yield significant tax reductions of up to 75%.
These provisions impact both individuals and businesses alike. The Legalstart website highlights several measures, including ‘aid for business creation or acquisition (ACRE), the research tax credit (CIR), exemptions on professional capital gains,’ and ‘tax reductions for donations or corporate sponsorship.’ Notably, some loopholes are exclusive to specific professions, such as the flat-rate deduction for journalists or tax exemptions for fishermen operating beyond French territorial waters.
To understand the extent of these tax loopholes in France, the Court of Auditors refers to the ‘Volume II of the annex Means and Ways,’ which is attached to the annual finance bill. This document details ‘all tax expenditures and evaluates their costs for the previous, current, and upcoming years.’ For 2024, it reports a staggering ‘467 derogatory tax provisions’, echoing the concerns raised by deputy Aurélien Le Coq. The impact? A ‘reduction in state tax revenues estimated at 81.3 billion euros in 2023.’
While the implications for public finances are significant, it is crucial to remember that many of these provisions serve specific social or economic goals. Numerous charitable organizations rely on donations from individuals to sustain their operations in areas where public funding is insufficient or lacking.
Majority of Costs Concentrated in a Few Loopholes
Tax loopholes vary widely, and not all are created equal in terms of their financial impact on public finances. According to the institutional site Vie Publique, in 2023, approximately ‘fifteen measures’ were responsible for ‘the majority of tax expenditure costs (43.3 billion euros, or 53.2% of the total).’ Furthermore, ‘47.1% of these expenditures’ directly affected income tax, resulting in a substantial net yield reduction of 43%.
Out of the total, 250 tax loopholes cost less than 9 million euros each, collectively amounting to no more than 400 million euros. The Court of Auditors has urged the government to ‘more systematically consider the elimination’ of certain loopholes, particularly those benefiting only a small number of taxpayers. Alarmingly, for 206 of these tax provisions, the administration cannot provide an accurate count of beneficiaries, complicating the assessment of their effectiveness.
Lastly, it’s worth noting that the cost associated with tax loopholes has been slightly adjusted downwards in the PLF 2024, decreasing by approximately 4.3 billion euros compared to the previous year’s budget. This reduction is primarily attributed to the discontinuation of the tax credit for competitiveness and employment (CICE).
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