2024-09-21 18:27:00
Lhe construction of the 2025 budget was already a real headache with the expectation of a new government. It is turning into a psychodrama… The cause: the question of taxation. Since Prime Minister Michel Barnier declared that he would not rule out “more tax justice”, implying that there could be tax increases, there has been a general commotion among the Macronists who want to defend the economic line of the outgoing executive at all costs… For Gérald Darmanin, the resigning Minister of the Interior, “there is no question that we [les macronistes] can enter into a government that we can support in the National Assembly […] a government that raises taxes.”
The supporters of “zero tax increases” have good arguments on their side. Despite the €55 billion reduction in taxes on households and businesses granted by the Macron government since 2017 (production taxes, housing tax, etc.), France remains one of the countries with the highest tax burden. The compulsory tax rate has in fact fallen from 45.3% of GDP in 2017 to 43.2%, which remains higher than the average for the eurozone (41.7% of GDP) or OECD countries (34%). By reducing this tax burden, the government wanted to boost activity and improve our attractiveness.
A “very serious budgetary situation”
But the Macronists also have short memories… At the beginning of Emmanuel Macron’s second five-year term, economists were already sounding the alarm. Their message? If efforts were not made immediately to reduce deficits, it would inevitably be necessary to increase taxes in the coming years, as the situation was becoming too critical to simply rely on the lever of reducing spending…
Warnings that fell on the ears of a somewhat deaf government, convinced that it was enough to revive growth to fill the state coffers. “The mistake of the Macron government was not to have aligned with tax cuts enough spending cuts,” underlines a former member of the High Council of Public Finances.
Have we reached the tipping point where we no longer have a choice? In any case, this is the speech given by Michel Barnier, arguing that he has inherited a “very serious budgetary situation”. According to the Treasury, the budgetary slippage could indeed reach 5.6% this year. We are once again in the sights of Brussels, which has placed France in excessive deficit procedure, and the rating agencies are watching us like a hawk…
The taboo of taxes
The Prime Minister is not the only one who wants to put the subject of taxation on the table. Last July, the economist Philippe Aghion, who inspired Emmanuel Macron’s program in 2017, declared in our columns that we should no longer “make not increasing taxes an absolute taboo”. At the end of August, it was the turn of the governor of the Bank of France, François Villeroy de Galhau, to call for “overcoming the taboo on tax revenues, without affecting SMEs and the middle classes if possible”.
Obviously, Michel Barnier does not imagine dealing a major fiscal blow to the country by massively increasing taxes. The risk of tipping into recession would be too great. As well as that of reawakening the anger of the French who have made their “tax fed up” clear. The Prime Minister hastened to declare that the middle classes would not be affected. There are whispers behind the scenes that the wealthiest and the largest companies could be made to contribute, temporarily, and certain tax loopholes reduced… which will ultimately not bring much, and in any case will not solve the deficit problem.
This is the whole ambiguity of the fiscal weapon, which is not a magic weapon against deficits. Used as a surgical strike, it has no significant recessive effect, but it only brings in crumbs. Bombarded on a large scale, it theoretically brings in more, but can slow down the economy to the point of… reducing revenues. The countries that implemented a drastic austerity cure following the sovereign debt crisis still remember this.
François Hollande had also backpedaled after his massive tax increases at the beginning of the five-year term to give the economy some oxygen. In any case, it will not exempt the country from starting to think about the fundamental question: how to build a more sustainable budgetary trajectory for the future? An initial response should be provided in the coming days by the new government…
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