2024-09-06 16:44:36
The State has an unfortunate tendency to tie its hands in terms of taxation. Year after year, the taxes and duties collected by Bercy are increasingly directed towards previously defined beneficiaries (local authorities, social security organizations, public audiovisual companies, State agencies, etc.), to the detriment of the general budget.
In a note published this Friday, the Council of Compulsory Levies (CPO, an offshoot of the Court of Auditors) notes that between 2018 and 2022, the amount of these allocated taxes and duties jumped by 24%. Taken together, they now represent 39% of compulsory levies (i.e. 462 billion euros in 2022).
A prohibition in principle
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This development is not unexpected. It is the logical consequence of decisions taken in recent years. When the government has reduced or even eliminated certain taxes, duties or contributions, it has generally compensated the former beneficiaries by giving them an equivalent share of VAT.
The communities were thus compensated for the abolition of the housing tax (20 billion euros), the reduction of the CVAE (contribution on the added value of companies, 8 billion) or the territorial economic contribution (3 billion). Social Security benefited from a similar transfer to compensate for the reductions in social charges (47 billion). The same when public broadcasting saw the disappearance of the license fee (3.7 billion).
This easy solution raises the eyebrows of CPO experts. Directing tax revenues to predefined beneficiaries can certainly contribute to better acceptance of taxes by taxpayers. But it has major drawbacks: democratic control of public funds is reduced, the resources allocated cannot be reallocated according to political priorities. Windfall effects or even rent effects are created when the amounts allocated exceed the real needs of the beneficiary and, finally, the tax system in general becomes more complex and less efficient.
For all these reasons, “the allocation is subject to a prohibition in principle, the exceptions to which are decided and regulated by Parliament”, the note recalls.
In recent years, the legislature has also wanted to put a stop to this. Since 2012, it has established the principle of capping the resources allocated to certain State operators. When their revenues exceed the set threshold, they are transferred to the general budget. Since 2023, all beneficiaries outside local authorities and Social Security are supposed to be affected – unless there is an exemption.
But this is far from being the case, according to the CPO. In 2024, some 15 billion euros of taxes and duties are allocated to such organizations without being capped. This is particularly the case for the VAT allocated to public audiovisual companies (3.7 billion), employer contributions to the national housing assistance fund (FNAL, 2.7 billion), for the construction effort (2 billion), etc.
The CPO experts call for compliance with the rule and for any exemption to be justified. More generally, they invite the executive to stop allocating VAT fractions to actors other than local authorities or Social Security. And above all, to do a major clean-up in the jungle of allocated taxes and duties.
The allocation of the same revenue to a number of communities, for example, makes their financing system difficult to understand. And sometimes, the logic of the allocations is not obvious. How can we explain that part of the alcohol tax finances, not health insurance, but old-age insurance?
Given the delay in drawing up the 2025 budget, it is not certain that the Barnier government will tackle it immediately, but a clean-up is necessary.
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Tax in France on salary
The Perils of Allocation: How France’s Tax System is Tying its Hands
France’s taxation system has a propensity to allocate taxes and duties to predetermined beneficiaries, such as local authorities, social security organizations, public audiovisual companies, and State agencies. According to a recent note published by the Council of Compulsory Levies (CPO), an offshoot of the Court of Auditors, this trend has led to a 24% increase in allocated taxes and duties between 2018 and 2022 [[1]]. These allocations now represent 39% of compulsory levies, amounting to 462 billion euros in 2022.
The Consequences of Allocation
While allocating taxes and duties to specific beneficiaries might contribute to better acceptance by taxpayers, it has major drawbacks. Democratic control of public funds is reduced, and resources cannot be reallocated according to political priorities. Additionally, windfall effects or rent effects are created when allocated amounts exceed the real needs of the beneficiary, leading to an inefficient tax system.
France’s Tax System: A Territorial Approach
France has a territorial tax system, which implies that corporate income tax is levied on profits allocated to a French business and on French-source income [[3]]. However, this approach can lead to complexities and inefficiencies in the tax system.
The Problem of VAT Allocation
When the government reduces or eliminates certain taxes, duties, or contributions, it often compensates the former beneficiaries by allocating an equivalent share of Value-Added Tax (VAT). This has been the case for the abolition of the housing tax (20 billion euros), the reduction of the CVAE (contribution on the added value of companies, 8 billion), and the territorial economic contribution (3 billion) [[2]].
Tax in France for foreigners
A Guide to Taxes in France: Understanding the Complex System
France’s tax system is known for its complexity, with multiple types of taxes, varying VAT rates, and rules that depend on residency status. In this article, we will delve into the world of French taxation, exploring the different types of taxes, who owes what, and the implications of a system that allocates a significant portion of taxes to predefined beneficiaries.
The State of Taxation in France
Year after year, the French government allocates an increasing percentage of taxes and duties to specific beneficiaries, such as local authorities, social security organizations, public audiovisual companies, and State agencies. This trend has led to a significant shift in the distribution of taxes, with 39% of compulsory levies (€462 billion in 2022) now directed towards these predefined beneficiaries [[1]].
A Prohibition in Principle
While directing tax revenues to specific beneficiaries may improve tax acceptance among taxpayers, it has several drawbacks. The allocation of taxes reduces democratic control over public funds, limits the ability to reallocate resources according to political priorities, and creates windfall effects or rent effects when allocated amounts exceed the actual needs of beneficiaries [[2]]. For these reasons, the allocation of taxes is subject to a prohibition in principle, with exceptions decided and regulated by Parliament.
Types of Taxes in France
France has a progressive income tax system, with varying VAT rates depending on the type of goods and services. There are also specific taxes on salaries, such as the social security contribution, which is mandatory for all employees [[3]].
Taxation in France on Salary
When it comes to taxation on salaries, the French government has implemented various measures to compensate for reductions in social charges and other taxes. For example, the abolition of the housing tax resulted in a €20 billion compensation to local authorities, while the reduction of the CVAE (contribution on the added value of companies) led to an €8 billion transfer to beneficiaries [[1]].
The Impact of Tax Allocation
The allocation of taxes to predefined beneficiaries raises concerns about the efficiency and fairness of the tax system. By directing a significant portion of taxes to specific groups, the government reduces its ability to reallocate resources according to changing priorities. This can lead to a lack of flexibility in responding to emerging challenges and opportunities.
Conclusion
France’s tax system is complex and multifaceted, with a significant portion of taxes allocated to predefined beneficiaries. While this approach may have some benefits, it also raises concerns about democratic control, resource allocation, and the efficiency of the tax system as a whole. By understanding the different types of taxes, who owes what, and the implications of tax allocation, we can better navigate the complexities of French taxation.
References:
<a href="https://en.wikipedia.org/wiki/TaxationinFrance”>[2]
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