2024-11-09 15:00:00
A historic drop in the rate of compulsory deductions in France
In 2023, the rate of compulsory deductions (taxes, social security contributions) in France increased from 47.6% to 45.6% of GDP according to Eurostat estimates. This decline marks a return to levels observed before 2011after an exceptional year 2022. Indeed, this abnormally high rate was inflated by exceptional tax revenues, the result of a post-Covid economic rebound, inflation and increased corporate profits. The founder of FipEco, François Écalle, emphasized during a Senate hearing that these recipes “ were inflated in 2021 and 2022 because taxes such as corporate tax amplify the rebound in activity ». In 2023, France was, after Greece (-2.1 points), the EU country having recorded the largest drop in the rate of compulsory deductions.
Contrary to what one might think, the drop observed in 2023 is not due to new massive tax cuts. It is explained by the slowdown in the economy, which led to stagnation in tax revenues, while public spending continued to increase. According to INSEE, tax revenues increased by 2% in current euros, well below the 6.2% growth in GDP in value. This drop in revenue is also accentuated by adjustments, such as the last phase of the elimination of the housing tax and the contribution on the added value of businesses.
France still remains the champion of tax pressure
The reduction in the rate of compulsory deductions could give the impression of tax relief for households and businesses. However, this return to “normal” levels is accompanied by a growing budget deficit, estimated at 5.5% of GDP in 2023 and which could reach 6.2% in 2024. Public spending will have to be adjusted or financed differently to avoid the deficit widening too sharply.
Despite this decline, France remains one of the countries in Europe and the OECD with the highest rate of compulsory deductions. Compared to its neighbors, this position is explained by a strongly redistributive tax system and substantial social contributions. Eurostat and INSEE diverge slightly in their calculation methods (INSEE estimates it at 43.2% and 45% in 2022), which explains the differences in the figures.
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**Interview with François Écalle, Founder of FipEco, on Payroll and Tax Changes in France**
**Editor:** Thank you for joining us today, François. Recently, there has been a significant decline in the rate of compulsory deductions in France, dropping from 47.6% to 45.6% of GDP according to Eurostat. Can you explain what this means for both employers and employees?
**François Écalle:** Thank you for having me. This decline is quite significant as it reflects a return to levels not seen since before 2011. For employers, it means lower payroll taxes and social contributions, which can provide some relief in operational costs. For employees, this could potentially translate into higher take-home pay as deductions decrease.
**Editor:** There was an abnormal spike in these rates in 2022, largely attributed to post-Covid economic recovery and increased corporate taxes. What were the main factors that caused this spike?
**François Écalle:** Exactly, the spike was driven by exceptional tax revenues due to a rebound in economic activity, fueled by inflation and rising corporate profits. For example, corporate taxes surged as companies regained financial strength post-pandemic. This situation was rather unique and not sustainable in the long run, leading us to the current drop.
**Editor:** With France experiencing one of the largest drops in compulsory deductions in the EU, how do you foresee this impacting the overall economy in 2024 and beyond?
**François Écalle:** The reduction in deductions could stimulate consumer spending as individuals retain more of their earnings. It may also encourage businesses to invest more in growth and employment without the heavy burden of taxes. However, we must monitor how the government balances these reductions with the need for public services funded through these deductions.
**Editor:** Costs for social security and pension schemes remain significant. How do you anticipate these elements will be managed moving forward?
**François Écalle:** Balancing social security and pension funding will always be a challenge. The government may need to explore other revenue streams or reform the tax system to ensure that these essential services remain funded adequately while still encouraging economic growth.
**Editor:** Lastly, what advice would you give to employers navigating this changing landscape?
**François Écalle:** My advice would be to stay informed about tax changes and take advantage of any new incentives or deductions available. Engaging with tax advisors and financial experts can help employers make strategic decisions that could benefit their business in the long term.
**Editor:** Thank you, François, for sharing your insights on this important topic. It’s clear that changes in payroll and tax structures can have wide-reaching implications for the French economy.
**François Écalle:** Thank you for having me. It’s crucial to keep the conversation going about these developments.