Michel Barnier, France’s new prime minister, has confirmed that taxes for bigger companies and richer citizens will be raised, in an attempt to plug the growing hole in the country’s public finances.
France’s new Prime Minister Michel Barnier announced on France 2 television that he will be hiking corporate tax rates for the richest citizens and largest French companies. This move confirms earlier reports of tax surges being part of Barnier’s new arsenal to deal with France’s worsening deficit situation.
Only companies which have a turnover of more than €1bn annually are likely to be impacted by this rise in corporate taxes, as of now. It’s estimated that the new tax rates are likely to hit about 300 companies across the country.
For wealthier individuals, that are part of households which make more than €500,000 annually, Barnier has put forward a temporary income tax hike. This move is expected to add approximately €2bn to public finances. A tax on share buybacks could also be seen.
However, Barnier emphasised that these measures were only temporary, for one or two years. He has also appealed to those who were in a better financial position to help contribute to rebuilding France’s finances.
The start date for France’s planned pension rise, to adjust for inflation, is also likely to be postponed to 1 July next year, instead of 1 January 2025, as earlier announced.
Barnier will announce the budget for 2025 next week, which is likely to contain more details about plans on how best to handle the country’s public finances and boost investor confidence.
However, this budget will still need to be approved by the new government, which may be challenging given that there is no parliamentary majority.
France continues to deal with deepening budget crisis
In the last several months, France has been dealing with a worsening deficit, as the country experiences falling tax revenues and a loss of investor confidence.
ING recently said: “New government estimates indicate that the public deficit – forecast at the start of the year at 4.4% and already revised upwards in April – should exceed 6% of GDP this year after 5.5% in 2023.
“This is a huge budgetary blow, which the government believes must be blamed on lower-than-expected tax revenues, against a backdrop of economic growth driven by exports rather than domestic consumption which has generated lower VAT receipts.
“The wait-and-see attitude of businesses, which in recent months have suspended a large number of investments and recruitments due to political uncertainty, has led to much lower-than-expected tax receipts. Finally, spending by local and regional authorities has been higher than forecast at around €16bn for 2024.”
Higher expenses in the form of fiscal support measures for businesses and citizens alike during the pandemic, as well as events such as the security crisis in New Caledonia, have all contributed to declining public finances.
To remedy this situation, France has already sold a number of bonds. Barnier has also recently proposed a new €60bn budget plan for 2025, which involves €40bn worth of spending cuts and €20bn worth of tax revenues. This plan is likely to help reduce the deficit to 5% of gross domestic product (GDP) next year, down from 6% this year.
