The French government has had to increase taxes as a way of raising additional income to help cover their budget deficit. These measures were implemented in the Finance Law of 2021, which saw a significant number of tax increases. Here are some of the major tax reforms that have been implemented in France to increase revenue:
1. Increase in VAT Rates: Value-added tax rates have increased for some specific goods and services, including energy drinks, tobacco, and electronic cigarettes. Also, the rate for admission fees for live shows and attractions was increased from 10% to 20%.
2. Packaging Tax: This new tax is an environmental measure that aims to encourage the recycling of packaging. It applies to companies that manufacture or import packaging and ranges from 50 euros to 500 euros per tonne of packaging produced, based on the level of recycling.
3. Increased Capital Gains Tax: The French government has increased the capital gains tax rate for most investments from 30% to 36.2%, which includes stocks, mutual funds, and real estate.
4. Impact on High Earners: High earners are subject to additional tax burdens, with the introduction of a new solidarity surcharge. The higher tax rate applies to taxable incomes above €150,000, with rates ranging from 2% to 4%.
Cutting Budgets
The French government has also introduced measures to cut budgets, hoping that this will help address their financial difficulties. Here are some of the ways they have tried to cut the budget:
1. Cutting Public Spending: The French government has announced that it will cut public spending across several areas, including healthcare, education, defense, and social protection, among others.
2. Reductions in Public Sector Hiring: The French government has announced a reduction in the hiring of new public sector employees. With a hiring freeze, the government is aiming to reduce its wage bill and cut spending on the public sector.
3. Pension Reforms: With the pension system being one of the most significant expenses in the French budget, the government has implemented reforms to reduce pension spending. The pension age for all employees was raised to 62 years.
4. Cutting Subsidies: The French government has reduced subsidies to businesses in an attempt to cut costs. Specific sectors will feel the effects of the cuts, including agriculture and energy.
Impact of these Measures
The implementation of these measures has had both positive and negative impacts on the French economy, with most people feeling the pinch. Here’s a closer look at the potential effects of these measures on the future of France.
Positives
1. Reduction in the Budget Deficit: By raising additional revenues and cutting expenses, the French government will be able to reduce the budget deficit, which had reached alarming levels.
2. Reduced Financial Risk: With the French government taking measures to address their financial situation, they can reduce the risk of defaulting on their loan and show that they can be trusted as a reliable borrower.
3. Restoration of Financial Confidence: Addressing France’s finances can restore confidence in the country’s financial stability, attracting investment and creating jobs.
Negatives
1. Impact on Consumers: The increase in VAT rates and other taxes has a direct impact on consumers’ pockets. France’s increased cost of living can hurt both low and high-income earners.
2. Impact on Businesses: The reduction in subsidies for various sectors can affect profits and reduce their ability to compete.
3. Potential for Social Unrest: Public sector employees affected by the hiring freeze and other budget cuts having the potential to trigger social unrest in France.
Conclusion
In summary, France has implemented measures to increase taxes and cut budgets to address its financial difficulty. The country has felt the economic impact of COVID-19 and has been compelled to take such measures to maintain financial stability. While the measures are not easy, their implementation has the potential to alleviate some of the financial issues France is currently experiencing.
With the European financial crisis creating havoc among Euro Zone member’s economy, France has been forced to re-tool their budget in light of an unbalanced budget. President Nicolas Sarkozy has been forced to raise about $65 billion Euros over the next 5 years in order to fill the gap.
At the same time, France has had to cut their budget, especially in the welfare benefits that have helped many citizens for years. The moves come as a preemptive strike to protect France’s credit rating. Other nations who continued to spend more than they brought in, such as Greece and Italy, are now facing default and may bring the Euro down in value.
The tax increases and spending cuts come right before the election cycle in France and it remains to be seen how the voting public will respond to the government action. Many feel the spending cuts and tax increases are necessary, but it still may affect Parliamentary and Presidential votes.
