Red alert for French finances! Michel Barnier describes the situation as “very serious”, and the Prime Minister is exploring options to replenish the coffers. Among the avenues considered, an increase in taxes on businesses could be on the agenda.
Capital Video: Tax increase: Michel Barnier and Medef have a plan, here are the details
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– Michel Barnier raised the idea of increasing taxes for “certain big companies”.
“A well-proportioned cocktail” reducing expenses and “certain targeted, fair tax increases”. This is the formula of the governor of the Bank of France, François Villeroy de Galhau, to counter the new budgetary slippage. The public deficit could reach 5.6% of GDP in 2024, even 6%while forecasts were for 5.1%. “The French disease is that we have been accumulating too much deficit and too much debt for too long, and this situation can no longer continue. Debt is becoming more and more expensive, expenses inherited from the past prevent us from financing future expenses. And the international lenders, who lend (money) to France, tell us: we must react”warned the governor of the Bank of France on France 2, Wednesday September 25.
The time is critical. “Apart from one or two years of exceptional crisis over the last 50 years, we have one of the worst deficits in our history”warned the new Minister of the Economy, Antoine Armand, barely appointed. In response, Michel Barnier plans to increase taxes, after seven years of tax reduction policy under Macron. According to INSEE, the rate of compulsory deductions has fallen from 45.3% of GDP in 2017 to 43.2% in 2023.
On Sunday, the Prime Minister considered it essential to carry out “targeted levies on wealthy individuals or certain large businesses”. Patrick Martin, president of Medef, declared that he was “ready to chat”provided that the State “take into account the situation” and avoids measures that would harm businesses and widen the deficit even further. On September 24, he clarified on franceinfo that this could slow growth. On Tuesday, he had a meeting at Matignon to discuss potential tax increases with Barnier.
Raising taxes: why has this option become a “red line”?
Share buyback tax and surcharge for the richest companies
At the end of this meeting, Medef could give its agreement to the introduction of a tax on share buybacks, according to information from BFMTV. This option has already been mentioned several times, notably last April. Gabriel Attal, who was then Prime Minister, had suggested the possibility of taxing “operations such as share buybacks carried out by large groups which, rather than investing and better paying their employees, buy back their own shares to increase their price”.
In 2023, share buybacks of CAC 40 companies will amount to around 30 billion euros. In summary, some companies opt to buy back their own shares on the financial market, which helps to increase the share price on the stock market. This plan to tax share buybacks could generate between 200 and 300 million euros for state coffers.
Corporate tax, increase in charges… how Michel Barnier wants to tax businesses
Another option considered is the introduction of a surcharge on corporate tax beyond a certain turnover threshold. “If there is to be an overtaxation of businesses, it must be very targeted, reasonable in amount” And “exceptional, that is to say only in 2025”Patrick Martin told Franceinfo on Tuesday. Currently, the corporate tax rate is 25% (since January 1, 2022).
Already in 2017, a surcharge on companies was exceptionally introduced. The 320 largest French companies generating more than a billion euros in turnover were taxed at 38.3% instead of the normal rate at the time (33%). For those whose turnover exceeded 3 billion, the rate was 43.3%. This device was supposed to bring in 5.4 billion euros.
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