Michel Barnier’s activation of the 49.3 mechanism raises concerns about the future of the 2025 budget, particularly regarding income tax indexing. A potential government censure could lead to a freeze on the tax scale, increasing tax burdens for many. If the 2024 budget is extended, an estimated 380,000 households may enter the taxable bracket. The impact of not indexing taxes could significantly affect various income profiles, resulting in higher tax obligations for those with stagnant wages amid rising inflation.
Michel Barnier Triggers the 49.3 Mechanism: What’s Next for the 2025 Budget?
As Michel Barnier activates the 49.3 mechanism, all signs point towards a likely censure of his government on the evening of Wednesday, December 4. This situation raises questions about the future of the 2025 budget, particularly regarding the indexing of the income tax scale. The most probable outcome is that the resigning government will pursue a special law to minimally extend the budget. This could have significant consequences, including a potential freeze on the income tax scale, leading to tax increases for numerous taxpayers.
1 – What Will Happen to the Income Tax Scale If the Government is Censured?
It’s essential to tread carefully here, as we are entering uncertain territory, and the use of conditional language is warranted. Budget Minister Laurent Saint-Martin cautioned this past weekend in Le Parisien that “if we extend the 2024 budget, we will automatically pull in an additional 380,000 French households into the income tax bracket since the scale won’t be adjusted for inflation, affecting 17 million households who will also see their taxes increase.”
Is this an automatic process? Not necessarily. Public law expert Vincent Dussart explains, “The special law focuses on a minimum level of tax collection, so it builds off the previous year’s tax framework. However, the Constitutional Council may impose limits, as the law intends for the scale to be adjusted annually; they could deem a failure to adjust as unconstitutional…”
Indeed, indexing is an unwritten norm. The finance law is responsible for reinstating this indexing each year. “The indexing of the scale has been a consistent practice since 1969, with deviations only in the finance laws for 2012 and 2013,” notes the Senate report on the 2025 budget. While this practice is systematic, without an active budget, indexing cannot occur. The interpretation of these regulations by both the government and the Constitutional Council will remain crucial…
In summary, if the government faces censure, a freeze on the tax scale is likely, but not a certainty. The suspense continues.
Income tax scale, pension adjustments… What implications do these changes hold for your financial situation in the event of censure?
If the resigning government opts for a minimum special law, it would indeed use the existing scale, which was already applied in 2024 to your 2023 income, to determine your 2025 tax based on your 2024 income.
2 – How Much Tax Will You Pay in 2025 If the Scale is Frozen?
It’s straightforward. Use the current official tax simulator with your 2024 income to estimate your potential 2025 tax. If the scale remains unchanged, any increase in your income will result in a higher tax; if your income stays the same, your tax obligation won’t change.
With an annual inflation rate projected by Insee to be around 2%, many households will see an increase in their income. According to Bercy, not indexing the scale following a government censure could lead to 380,000 households being brought into the taxable bracket. A Senate report published in November estimates that the cost of indexing would amount to 3.7 billion euros, which would consequently affect households if indexing does not occur. However, the impact of indexing is anticipated to be much lower at 2%, compared to the previous years’ revaluations of 5.4% and 4.8%, which each cost public finances around 6 billion euros annually.
3 – What Would a Frozen Scale “Cost” You Without a 2025 Budget?
Let’s consider five “typical” profiles:
- Manon: Earned just above the minimum wage in 2024, now making 1,426.30 euros net after the minimum wage increase in November.
- Sabrina: Earning 2,000 euros per month, which is roughly the median salary in France.
- Johan: Bringing in nearly 3,000 euros per month net, significantly above the average French salary.
- Amina and Gabriel: Each earning about 2,700 euros net per month with two dependent children.
- Elisabeth and Jacques: Without dependent children, earning approximately 4,200 euros net per month each.
In the scenario of a censure, if the 2024 scale is extended into 2025, it translates to a freeze of the scale, which is less favorable than the 2025 scale that was initially planned, which would have been indexed for a 2% inflation rate. The comparison is clear.