French Prime Minister Michel Barnier announced on France 2 television that he will increase corporate tax rates for the richest citizens and the largest French companies. The move confirms earlier reports that the tax hike is part of Barnier's new arsenal to tackle France's worsening deficit situation.
For now, this increase in corporate taxes is likely to affect only companies with an annual turnover of more than €1 billion. It is estimated that the new tax rates are likely to affect around 300 companies across the country.
For wealthier individuals who are part of households with an annual income of more than €500,000, Barnier has proposed a temporary increase in income tax. The move is expected to add around €2 billion to public finances. A tax on share buybacks may also be introduced.
However, Barnier stressed that these measures are only temporary - for one or two years. He also appealed to those in a better financial position to contribute to the recovery of the country's finances.
The start date of a planned increase in pensions in France to adjust for inflation is also likely to be postponed until 1 July next year, instead of 1 January 2025 as previously announced.
Barnier will announce the 2025 budget next week, which is likely to contain more details of plans on how best to tackle the country's public finances and boost investor confidence.
However, this budget will still have to be approved by the new government, which could prove challenging given that there is no parliamentary majority.
France continues to struggle with deepening budget crisis
Over the past few months, France has faced a widening budget deficit as the country suffers from falling tax revenues and a loss of investor confidence.
"New government estimates show that the public deficit - projected at the beginning of the year at 4.4% and already revised upwards in April - should exceed 6% of GDP this year and 5.5% in 2023," said ING Banking and Financial Services Corporation.
"This is a huge budget hit, which the government believes should be blamed on lower-than-expected tax revenues amid export-led economic growth rather than domestic consumption, which generates lower VAT receipts. The wait-and-see attitude of businesses, which have suspended a large number of investments and hirings in recent months due to political uncertainty, has led to much lower than expected tax receipts. Finally, local and regional government spending is higher than forecast, amounting to around €16 billion in 2024," the corporation added.
Higher spending in the form of fiscal support measures for both businesses and citizens during the pandemic, as well as events such as the security crisis in New Caledonia, have contributed to the deterioration in public finances.
To remedy this situation, France has already sold a number of bonds. Barnier has also recently proposed a new budget plan for 2025 worth EUR 60 billion, which includes spending cuts worth EUR 40 billion and a EUR 20 billion increase in tax revenue. This plan is likely to help reduce the deficit to 5% of GDP next year, from 6% this year. | BGNES
