Public deficit slippage: what tax increases can you fear?

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Bruno Le Maire has warned parliamentarians of a public deficit slippage of 16 billion euros for the year 2024. According to the Prime Minister chosen by Emmanuel Macron, the future government could defend more or less significant tax increases.

Towards a fiscal electroshock? Nothing is certain… At least until we know the identity of the Prime Minister who will succeed Gabriel Attal at Matignon. However, there is urgency. The Minister of Economy and Finance of the resigning government, Bruno Le Maire, has in fact alerted the deputies and senators of a slippage in the public deficit of 16 billion euros for the year 2024, in a letter sent on Monday, September 2. And according to a Treasury note attached to this letter, the public deficit risks reaching 5.6% of GDP in 2024 instead of the 5.1% initially planned in the budgetary trajectory.

This is a poisoned chalice for the future government in charge, which will have the difficult task of trying to bring the public deficit below 3%. Especially since the outgoing government is pointing to a drop in revenue from value added tax (VAT), particularly linked to an erosion of French consumption. Should we therefore fear a tightening of tax policy through the next draft finance bill (PLF) for 2025? “It is difficult to know because depending on the government we have, the orientations will not be the same, especially in tax matters.”warns François Ecalle, president of the Fipeco website, specializing in public finances.

Towards an increase in the flat tax?

However, it is not excluded that the future government will seek to boost its revenue by increasing the overall rate of the single flat-rate deduction (PFU), known as the “flat tax”. A tax which, since 2018, applies to income from savings and capital excluding real estate and whose objective is to simplify and reduce the taxation of savings. “It is possible that the rate will go from 30 to 32% or even 35%, in any case we can imagine a majority ready to vote for that”supposes François Ecalle. With the revenues from the flat tax on income tax expected for 2024 expected to reach 6.8 billion euros in 2024, such a 5% increase would bring in a little over 1.1 billion euros. Less than the radical abandonment of the flat tax, defended by the New Popular Front during the legislative elections and which would allow 1.8 billion euros to be recovered. A scenario that is nevertheless unlikely. And this, even if the future government carries its colors, several experts interviewed estimate that it will be very difficult to reach a majority ready to adopt this measure in Parliament.

No revaluation of the income tax scale?

As for income tax, only a government in the colours of the New Popular Front would attempt to revolutionise the scale by making it very progressive with 14 brackets instead of the current 5. The aim being to tax the richest. “But we will never find 289 deputies who will vote for an increase in income tax”warns Philippe Bruneau, president of the Circle of Tax Experts. “Such a scale would make entrepreneurs and start-uppers disappear”adds François Ecalle.

If Emmanuel Macron gives the keys to Matignon to the right, on the other hand, it is, there too, unlikely to witness a revolution in income tax. But in the face of the public deficit slippage, an idea is gaining ground. “This would involve not revaluing the tax scale according to inflation. Thus, if your income increases, you will pay more tax than if the scale had been revalued to take inflation into account.”.

Towards a return of the ISF with Bernard Cazeneuve at Matignon

Finally, there is the property wealth tax (IFI). “I can see a reestablishment of the wealth tax (ISF)says François Ecalle. Especially if we take the hypothesis of a Bernard Cazeneuve at Matignon. It would be less likely with Xavier Bertrand.” It remains to be seen in what form the ISF could return. Because if it is defended by both the left and the far right, their respective versions are very different. On the New Popular Front side, they defend a “greener” ISF that aims to encourage virtuous behavior for the environment. This would generate 15 billion euros of additional revenue. The National Rally, they support instead a tax on financial wealth, an ISF from which primary residences would be exempt.

What if there was no tax revolution?

Another possible scenario: zero tax revolution. In any case, this is what Philippe Bruneau expects. Because even with a new Prime Minister appointed by Emmanuel Macron, the latter will have great difficulty finding a majority in Parliament to vote for unpopular tax increases. “At best, there will probably be painless half-measures. Don’t forget that there could be a presidential election at any time if Emmanuel Macron ends up resigning. And there are politicians who are already preparing for it.” In this eventuality, potential candidates for the Elysée would indeed have no interest in tarnishing their image by voting for unpopular fiscal measures.