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Speaking of growth, let’s talk about taxation

It is already the last day of the first month of the year. Analysts have their eyes riveted on the market, everyone is tending to their accounts, and the French are scrutinising their first-ever pay slip including withholding tax. 

The Paris Stock Market opened up slightly, investors appearing to appreciate the accommodating signals sent out the day before by the US Federal Reserve. The CAC 40 topped the mark of 5,000 points this morning, having taken note of the stance of the FED, which has promised, in the words of Le Figaro Economie, “to be ‘patient’ in terms of future rate hikes owing to the global economic slowdown and in the absence of any real acceleration in inflation. ‘Investors should now quickly turn their attention to progress on trade relations between Washington and Beijing,’ the analysts add. The United States and China resumed their delicate trade negotiations on Wednesday at the White House amid an extremely tense environment exacerbated by the series of charges against the Chinese telecoms giant Huawei and one of its senior executives.” The French daily goes on to comment: “The possibility of a second shutdown starting on 15 February could have a lasting economic impact mainly due to the resulting loss in confidence.”


In France, new information on the investments of the French population has generated extensive analysis and commentary. Overall, the appetite of the French for real estate and their aversion to risk remain the same, despite the IFI property wealth tax. The Le Figaro journalist explains: “One year after the huge tax change implemented by Emmanuel Macron in his first budget, the French have not abandoned their two favourite investments, life insurance and real estate. The replacement of the ISF wealth tax by the IFI tax on property alone, together with the creation of a flat tax of 30% on capital income, were in part aimed at encouraging the population to invest in equities, to the detriment of ‘property income’. But much to the government’s regret, at this point only 11% of the French population’s savings are allocated to the financing of company capital.”


Regarding our economic growth, the National Institute of Statistics and Economic Studies, INSEE, this week published an initial forecast for 2018. According to the institute, writes Le Figaro, “GDP growth was a mere 1.5% for the year as a whole, considerably lower than the 2.3% (data corrected for business days) achieved in 2017. The result is consistent with INSEE’s most recent forecasts, but lower than the government’s objective of 1.7%, after an initial forecast of 2%.”


Le Figaro continues as follows: “The French Economy Minister Bruno Le Maire tweeted that ‘Our policy produces results’.” The minister cited positive figures on job creation, up sharply on 2017. Once again according to INSEE, Le Figaro article continues, “business start-ups in France came to a record 691,000 in 2018, some 100,000 more than in 2017, for a 17% year-on-year increase. This growth has accelerated, since, while the trend was already on an upturn, it was nevertheless lower in the two previous years. These good results are being driven by micro-businesses, which grew 28% in 2018, for 66,500 additional registrations. This growth can be explained in part by the entry into force on 1 January 2018 of new legislation doubling the revenue caps of micro-businesses.”


Meanwhile, financial daily Les Echos focused on a recent French Economic Observatory (OFCE) study according to which the purchasing power of three in four households is expected to rise in 2019. “All of the measures taken by the government to calm the situation should serve to ease tax pressure on households by 0.5 GDP points in 2019, says the research centre. ‘This is a real turning point for households, which will see the first real decrease in their compulsory levies since 2007 and Nicolas Sarkozy’s Tepa Act,’ says OFCE economist Mathieu Plane, one of the authors of the study. French households are emerging from a trying decade. The fiscal pressure rate on their shoulders has risen by over 3 GDP points since 2007. ‘A true tax shock,’ says Mathieu Plane, adding that, in contrast, compulsory levies on businesses have ebbed since 2013 to return to pre-crisis levels.”


Again according to Les Echos: “There will thus be a turnaround in 2019. The public authorities will be injecting some €11.4 billion into the purchasing power of the French, €10.3 billion of which can be directly attributed to the measures announced in December by Emmanuel Macron (increase in the employment bonus, overtime pay exempt from tax and social security contributions, discount on CSG social contributions for some pensioners, etc.). Says Mathieu Plane: ‘The readjustment was provided for through the continued decrease in residence tax and the change in social contributions and CSG contributions, but it was stepped up’ after the yellow jackets crisis.”

Incidentally, the OFCE expects this massive injection to also have positive effects on growth.

The new year looks set to be a suspenseful one…

Christian Moguérou

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