What leeway for new tax cuts? – Point

The government has very limited room for maneuver to implement tax cuts on households announced Thursday by President François Hollande, if he wants to continue its policy in favor of businesses and reduce the deficit.

What timetable for a tax cut

Answer: The President Hollande was not specific on this point. And sources diverge within the executive. Most likely, to the extent that the president wants to condition the tax cuts to the good performance of growth, would be a vote on a supplementary budget in the spring or next summer, once known the figure of growth first quarter and forecasting INSEE throughout the year. But the opposing requirements by slingers within his own party and electoral emergency could push Hollande to give pledges to his left. In that case, he might want to speed up the process and enforce the debate when preparing the 2016 budget this fall.

What fiscal space available to the government?

Virtually no. The Ministry of Finance has in fact already dealing with a budget equation to several constraints. The objective is to reduce the public deficit (State, social protection, local authorities) 4% of GDP in 2014 to 3.8% in 2015 and 3.3% in 2016, while continuing the political massive aid to enterprises (41 billion euros between 2015 and 2017). To get to balance the budget 2016, the government provided 14.5 billion savings in public spending in relation to the trend (which are part of the 50 billion announced at the beginning of five years), to which he added the spring 5000000000 to offset the additional savings measures rendered obsolete by too low inflation.

What can we lower taxes?

Technically, the easiest, most usual in any case, is to decide a further decline in income tax. Hollande has also ensured that the reductions would concern “the middle classes”, confirming that the government would pass without any doubt by this tax, paid today about half of the French, those whose incomes are highest.

other levies as the general social contribution (CSG) or value added tax (VAT) affect everyone. Touching the first would be possible, by implementing its progressiveness. CSG is now a proportional tax, that is to say that its rate does not vary depending on what is taxed. Progressivity (calculation increments and not as a percentage) of the CSG was suggested by the Socialist Party in a report adopted in late July, but until the executive is never used to play on compulsory levies . As for VAT, interest rates were increased in 2014 to finance the tax credit-competitive employment. It is unlikely that Mr. Holland decided to return it.

Why it releases margin growth for lower taxes?

“More growth means more revenue,” told AFP Eric Heyer, an economist at the French Observatory of Economic Conditions. It is almost mathematical. More companies generate profits, the more people work, the more communities invest more consumption in full swing, the more money goes into the state coffers. For Mr. Heyer moreover, these tax cuts could generate a “virtuous circle” as they correspond to the additional purchasing power that pulls up consumption, the main driver of French growth. The economist even believes that tax cuts would be “virtually self-financed” by the additional growth from the first year.