Connect with us

Hi, what are you looking for?

Economy

French budget packs bigger tax punch than first meets the eye

By Leigh Thomas

PARIS (Reuters) – France’s belt-tightening budget delivers a bigger tax hit than the government originally let on, according to new breakdowns that suggest a bigger dent in President Emmanuel Macron’s pro-business legacy.

Prime Minister Michel Barnier presented a 2025 budget bill last week putting what ministers said was a 60 billion euro ($65.2 billion) squeeze on the public finances, made up two thirds of spending cuts and one third tax hikes.

The government stressed the tax hikes would be mostly borne by big companies, with a temporary surtax on groups with over a billion euros in revenue, and wealthy individuals earning more than a quarter of a million euros.

But while Barnier’s ministers insisted the tax hikes amounted to less than 20 billion euros, the annex to one of their own budget documents released this week puts the tally at 29.5 billion euros.

The new tax hikes, worth about one percent of economic output, are roughly equivalent to the tax cuts Macron has given companies since he became president in 2017 on a pro-business reform agenda.

“The risk, then, is that a major tax-based consolidation will squander Macron’s legacy and affect the supply side negatively,” said Jean-Pisani Ferry, an early architect of Macron’s economic strategy who has since taken distance.

“For this not to happen, business and investors should believe taxes are actually temporary and forgive Barnier for having introduced them as a temporary fix,” he said in a note for Brussels think-tank Bruegel.

BIGGER TAX BURDEN

The discrepancy comes down the government classifying some measures as spending cuts in the headline number and as tax hikes in the more detailed breakdown, said Allianz (ETR:ALVG) Trade senior economist Maxime Darmet.

A case in point is a planned reduction in the tax breaks on social security payroll contributions for low-income workers that was classified at once as a spending cut and a tax hike.

No matter how the move is classified, it will hit many small and mid-sized firms that employ a lot of minimum wage workers, which flies in the face of government promises that tax hikes spare them by targeting big companies.

Reductions in incentives for hiring apprentices and the rollback of a temporary tax cut on electricity, which were not included in the government’s headline tax hike numbers, will also have a wide impact on companies.

“The government is playing with words to give the impression that they are doing more on spending than revenues,” Darmet said.

In France’s highly fractured parliament, the government calculated that spending cuts would go down more smoothly than tax hikes, which Macron’s party and Barnier’s own conservatives are deeply uncomfortable with, he added.

The far-right Rassemblement party, whose tacit support the government needs to survive a potential no-confidence vote, has blasted Barnier’s budget, demanding more spending cuts be included.

WINDOW DRESSING

While the tax shock is bigger than flagged, the spending squeeze is much smaller, as the independent fiscal watchdog was quick to point out.

The government based its spending cut estimates on where spending would have been in 2025 had nothing been done to rein it in – a starting point Rexecode economist Charles-Henri Colombier said was debatable.

The fiscal watchdog, mandated by law to determine whether the government’s numbers stack up, estimated the overall budget squeeze was worth 42 billion euros rather than the government’s 60 billion, with 70% coming from tax hikes and the rest from spending cuts.

“France has a fundamental problem with really doing something about its spending and even in the current emergency situation keeps window-dressing by increasing taxes rather than cutting spending,” Colombier said.

($1 = 0.9207 euros)

This post appeared first on investing.com






    You May Also Like

    Editor's Pick

    Sen. JD Vance (R-Ohio) and Minnesota Gov. Tim Walz (D) will face off Tuesday night at a CBS News vice-presidential debate in New York....

    Latest News

    A North Korean defector who escaped to the South more than a decade ago was detained after attempting to cross back into North Korea...

    Economy

    A U.N. human rights group confirmed Hamas’ leader in Lebanon, who was recently killed by Israeli strikes, was their employee.  Fateh Sherif was killed...

    Investing

    Astron (ASX:ATR) and Energy Fuels (TSX:EFR,NYSEAMERICAN:UUUU) have completed the establishment of a joint venture to advance the Australia-based Donald rare earths and mineral sands...

    Disclaimer: balanceandcharge.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.


    Copyright © 2024 balanceandcharge.com