In which tax once again raises its head…
Debate is heated, demonstrations are leaving their mark, and the cost of discontent is already in the millions, damage and economic consequences included. The French government has a lot on its plate, and tax issues have become a communication focus of the president. The financial daily Les Echos is surprised to see the government opening the door to a return of the solidarity tax on wealth (ISF). While considering that it is still too early to judge the effectiveness of the reform, government spokesperson Benjamin Griveaux said that the tax on property wealth (IFI) could be assessed in a year’s time, some 12 months earlier than planned. “’If something doesn’t work, we aren’t foolish, we will change it,’ he added – implicitly leaving the door open to a return of the ISF. But he did say that this ‘subject [was] not on the table’, calling for ‘18 to 24 months to judge the full impact of the measure’.”
Replacing the ISF with the IFI, applying to real estate assets only, was one of the key measures at the start of Emmanuel Macron’s presidency. But above all it has become a negative aspect of his term of office. By extension, the tax burden in France is seen as one of the reasons behind the gilets jaunes revolt. So who is right?
Le Figaro addresses the issue of the tax pressure on French workers by asking the irksome question: “Are French workers burdened by taxes? No doubt. But not much more than in other countries. So why this feeling that work no longer pays? The answer: increasing levies on consumption and a tangible sense of downward economic mobility.” The daily goes on: “‘Living decently from the fruits of one’s labour’ is the goal of the government’s reforms, the prime minister said on Tuesday when announcing the measures taken to calm the anger of the gilets jaunes. But why do so many French people feel that ‘work no longer pays’, despite the figures of statistics institutes? Income tax and social contributions are commonly referred to as the ‘tax wedge’. The OECD regularly publishes an estimate of the size of this ‘wedge’, and France, unsurprisingly, turns out to have some of the highest direct and indirect tax rates in the world. The Fipeco website of information on public finances also tracks other indicators relative to the tax burden, including the ratio of income tax to GDP and the implicit tax rate. And the French economy is once again among the most heavily taxed, with a top ranking in Europe, itself boasting scant economic momentum.” But the question transcending political parties and economists of all stripes is as follows: Why do French people have the sentiment that work no longer pays? Le Figaro posits an answer: “In addition to the macro-economic analysis of tax levies, other factors are involved that aggravate the situation and the feeling that work does not suffice to live normally. It is impossible to draw an overall conclusion on the real fruits of a person’s labour without taking account of tax on consumption. Since his election in 2017, Emmanuel Macron has reduced income tax and contributions, notably transferring them de facto to consumption. The result is that purchasing power appears ultimately to have stagnated. Are the government’s reforms simply an accounting trick? In reality, the weight of the State continues to increase. This indeed is the message of the gilets jaunes, whose revolt was sparked by taxes on fuel for private individuals. It may be a consumption tax, but it applies to two-thirds of the French population commuting by car and puts a strain on their income. A number of necessary expenses are affected by the phenomenon, including electricity, gas and car safety inspections.” Le Figaro ups the ante with the paragraph header, “Is the State a partisan of making less effort?” Ultimately, “for work to ‘pay’, a comparison needs to be made between professional income and the social aid provided to French people on the basis of their personal or professional difficulties. One out of three French people think that our system favours State hand-outs and 47% believe it is important to ‘better target social aid’. These services swallow up one-third of GDP, a world record. More broadly, it is the action of the public services that is “not up to scratch” and, implicitly, one of the major questions of the gilets jaunes is tax productivity, i.e. the efficiency of the public authorities in their use of the money levied.” A word, Mister President: don’t look at the cover of the new issue of Le Point, which reads “The last days of the French model”. Or then again, subscribe to it.