If allocations have not fallen at the national level, local elected officials believe that inflation has not been fully compensated.
This is the latest illustration of tensions between Emmanuel Macron and local authorities. During his interview on TF1 and France 2Sunday September 24, the President of the Republic defended himself from restricting aid to local authorities, as certain mayors have accused for several weeks.
“We have not reduced the allocations to local authorities.”
Emmanuel Macronon TF1 and France 2
Is the Head of State right to assert that the various governments that have succeeded one another since he came to power in 2017 have maintained constant financial support for local authorities? If allocations have increased slightly on paper, some town halls believe they are being penalized, particularly due to high inflation.
The allocation from the State has not decreased at the national level
At the origin of almost a third of the resources paid each year, the State is the leading contributor to the community budget, explains the government. The most important of these grants is the overall operating grant (DGF), which is used to finance a certain number of services and skills delegated by the State to communities. The DGF is, for example, supposed to cover the operating costs of primary schools, libraries and sports facilities, which are managed by the municipalities.
Even if significant disparities exist between the municipalities which receive the DGF, Emmanuel Macron is right when he asserts that from a strict accounting point of view, the State “did not reduce allocations to local authorities” across the country. Faced with the energy crisis, Elisabeth Borne, for example, announced on October 7, 2022 an increase of 320 million euros in the DGF, an increase of 1.2% compared to the previous year. This extension, intended to compensate for the explosion in energy prices, was a first in thirteen years. Under the presidencies of Nicolas Sarkozy and François Hollande, this allocation was frozen or reduced.
Monday September 25, the government announced a new increase of 220 million euros from the DGF, bringing its amount to 27.16 billion euros. Grants from local authorities have therefore increased. “There has been no reduction in allocation to local authorities”confirms Alain Trannoy, economist and director of studies at the School of Advanced Studies in Social Sciences.
The thorny question of inflation
But that’s without taking into account the annual rate of inflation, which has exploded since 2020, as INSEE points out. In 2022, it amounted to 5.2% in France, excluding Mayotte. “A 0.8% increase in the DGF in 2024, when expected inflation is 5%, represents a potential loss of 4.2% in constant euros. This will be by far the largest of these seven last years”deplores André Laignel, PS mayor of Issoudun (Indre) and vice-president of the Association of Mayors of France (AMF), to franceinfo.
“The count is not there, and we are unfortunately far from it.”
André Laignel, PS vice-president of the Association of Mayors of Franceat franceinfo
For several decades, the AMF has called for indexation of the DGF to the level of inflation. If the allocation had been indexed to an inflation rate of 5%, this “would have led to an increase of 1.3 billion euros”, calculates the chosen one. For him, the 220 million euros increase “are in reality a decline in the power of action of local authorities”because of the significant inflation suffered by them.
A discord between Paris and the executive on local finances
To this decline linked to inflation is added, in certain cases, a drop in allocations. The amount of the DGF allocated by the State to each municipality depends on its population, its fiscal potential (i.e. the free tax resources that a municipality can mobilize), roads and the number of children in school. A complex calculation at the end of which Paris, for example, received nothing in 2022 and 2023, denounces the municipality.
At the capital’s town hall, finance assistant Paul Simondon is alarmed by a significant shortfall. “The DGF was at 930 million in 2015 and it was at zero in 2023, for the second consecutive year”, he laments. In response, Anne Hidalgo announced that she would take legal action to force the State to rectify the situation. “The local finance system is running out of steam. The State strangles communities to put them under supervision”accuses his deputy. According to the AMF, the Parisian case is not isolated: more than half of the municipalities and intermunicipalities have seen their DGF fall in current euros.
This disappearance of the DGF is one of the reasons why Paris significantly increased the property tax in 2023. Collected mainly on built properties, this tax directly feeds the annual budget of municipalities, and constitutes one of the main levers of municipalities to increase their resources.
This increase, decided by the capital’s town hall, was denounced by Emmanuel Macron on Sunday evening. “When I see municipalities like Tourcoing, like Angers [des communes auparavant dirigées par deux de ses ministres, Gérald Darmanin et Christophe Béchu]like others who have not increased their property tax, and Paris which has increased by more than 60%, it is the responsibility of elected officials”he castigated.
“When you have your property tax increasing, it’s not the government. It’s your municipality that decides. And it’s a scandal when I hear elected officials who dare to say that it’s the government’s fault !”
Emmanuel Macronon TF1 and France 2
In reality, the sharp increase in property tax suffered by owners is broken down into two parts, in Paris as elsewhere. There is, on the one hand, what the municipality decides: in the capital, the municipality has thus recorded a local increase of 51.9% in the property tax, which has been criticized by the oppositions of the center and the RIGHT.
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On the other hand, there is a 7.1% increase in property tax, applied at national level and independent of municipal decisions. This increase is primarily explained by the abolition of the housing tax. The end of this tax led to an overhaul of local taxation and an increase in property taxes, according to a report from the General Directorate of Public Finances, cited by The echoes. High inflation also pushes this tax upwards: the generalized increase in prices in fact determines the “cadastral rental values”, on which the basis of this tax depends. The more these values climb, the more the base and the tax increase.
An insufficiently compensated tax cut?
Other factors undermine the finances of communities in difficulty, deplore elected officials. There is in particular the abolition of the housing tax, as well as the gradual abolition of the contribution on the added value of businesses (CVAE).
The State was committed to compensating for these deletions “to the nearest euro”. However, André Laignel believes that there is a lack “a little over a billion euros for the compensation of the housing tax to be full”. Indeed, according to an AMF calculation, local authorities received 84.39 billion euros instead of the 85.44 billion euros expected for the years 2020 and 2021. This represents compensation of 98.77% on the part of the State.
Paul Simondon believes that the account is not there either regarding the abolition of the CVAE: “The State paid 10.6 billion euros in compensation to communities. If it had not been abolished, communities would have received 11.3 billion euros. There is therefore 700 million missing”notes the finance assistant of the City of Paris, who denounces a “sleight of hand”. A figure confirmed by the Association of Mayors of France.
A Senate report (PDF document) published in June highlighted the impact of the State on the financial balance of communities: “Many unilateral decisions by the State affect, directly or indirectly, the ‘power to act’ of local authorities. Whether they increase their costs or reduce their resources, these decisions compromise the balance of local finances, in a budgetary context already largely constrained due to the increase in the cost of energy and raw materials.
Emmanuel Macron’s comments on September 25 have therefore revived the debate on the finances of local authorities, in a context where relations between the State and municipalities and intermunicipalities seem to have deteriorated significantly. “What is certain is that the State will use calculation methods that will cost it as little as possible”analyzes economist Alain Trannoy. “It is therefore quite normal for associations of elected officials to complain when they note a financial withdrawal compared to the expected development.”