TRUE or FALSE – On Sunday, September 22, the day after the announcement of the new government, Prime Minister Michel Barnier discussed the economic situation on the France 2 television news. Among the avenues being considered to revive the economy is the freezing of the income tax scale.
© GEOFFROY VAN DER HASSELT / AFP
– Antoine Armand, new Minister of the Economy during the handover speech at Bercy, Sunday September 22.
The state’s finances are causing concern, with a public deficit expected to reach 5.6% of gross domestic product (GDP) in 2024, and could reach 6.2% in 2025, according to forecasts by the French Treasury. Faced with this urgent situation, Michel Barnier ruled out, on Sunday, a tax increase that would affect “all French people”while mentioning a possible contribution of “more affluent and large companies”.
But will the freezing of scales really spare the middle classes? Charles Rodwell (Ensemble pour la République) considers this measure as a “disguised tax increase”Two economists, Henry Sterdyniak and Xavier Timbeau, analyze this proposal, which could be implemented in 2025.
Taxes: Michel Barnier rules out any increase for the middle classes, according to Gabriel Attal
Freezing of scales: a threat to thousands of taxpayers?
Since the election of Emmanuel Macron, the State has reduced taxes by 70 billion euros, notably by eliminating the housing tax and the audiovisual license fee, as well as the repeal of the wealth tax (ISF) in favor of the real estate wealth tax (IFI). According to Henry Sterdyniak, “The government had initially thought that these measures would stimulate economic activity, but with the Covid crisis and the increase in inflation, this recovery has not materialized”. It therefore becomes necessary to recover these funds, hence the idea of freezing the scales.
The income tax scale is made up of several progressive brackets, with rates ranging from 0% to 45%. Since 2017, Bercy has indexed it to inflation, which has prevented 320,000 new households from becoming taxable. The new government hopes that a freeze on the scales could increase revenue by €4 billion. Economist Henry Sterdyniak predicts that “Everyone will pay a little more income tax, because all the brackets will remain at the same level, while incomes have increased. Currently 45% of households pay taxes, now, with this measure, we should go to 48% approximately”. This means both “an increase in income tax” and an “expansion of taxable households”Wage increases, accompanied by inflation, could thus move households from a non-taxable to a taxable situation.
Income tax return: here is the tax scale in 2024
A tax increase that would hit 7 million households?
For Xavier Timbeau, director of the OFCE, the key question is to determine which brackets will be affected by the freezing of scales: “If the government touches the 30% bracket (starting at 29,000 euros per year for a single person), this would bring 300,000 people previously in the 11% bracket, an income of around 2,400 euros net per month.” On the other hand, if the impact is limited to the 41% (82,000 euros) or 45% (177,000 euros) brackets, the effect would be less significant. Freezing the scale requires a trade-off between the amount to be recovered and the households concerned.
This could result in more than 300,000 people being moved into the 30% bracket, also leading to tax increases for those already in the 30%, 41% and 45% brackets, with “an increase in the tax rate of between 30% and 40%”says Xavier Timbeau. Around 7 million households, or 19% of French households, would be affected. “It is therefore biased to say that there will be no tax increase for all French people.”he concluded.
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