On Hollande’s watch, overall tax has gone up from 43.7% of GDP to 46% (in his first year alone he increased tax by €30 billion), annual income growth has nudged up by only 0.4%, unemployment has gone to over 10%.
Prime Minister Valls, and the new Economy Minister, Emmanuel Macron, are trying to reverse the ship by making overtures to business and entreprises. In 2015, a reduction in social security charges paid by employers will come on-stream, savings of €21 billion will be squeezed out of the over-generous social security system, and – most symbolically – the 75% top tax rate will be quietly allowed to die.
“The last time we heard such pro-business discourse was in 1995 under Alain Madelin,” reported The Economist, quoting Bruno Cavalier from Oddo Securities, but for many it’s too little, too late. It certainly won’t save Mr Hollande, but it may promote the political futures for Valls and Macron. (And Madelin? “He lasted only three months.”)
Next year’s Finance Budget sees various tax changes that will affect all of us, again too little, too late!
• The bottom tranche of income tax at 5.5% will disappear, meaning that those earning less than €9690 per annum will be spared any tax.
• The Duflot incentive to buy new houses will be replaced by that of the new minister, Pinel, whereby for property investments up to €300,000 there will be tax reductions of 12%, 18% or 21% depending on whether you rent out the property for 6, 9 or 12 years respectively. The property can also be rented out to one’s children, unlike the Duflot regime.
• A new raft of ecological tax credits will be introduced, giving a reduction of 30% across the board, with far more devices being allowable, from heating to insulation. The upper ceiling for the credit remains, however, at €8,000 per person.
• The sale of land for building will attract less capital gains tax. At present it takes a full 30 years to lose the Capital Gains Tax of 34.5%; now the period of detention of the land drops to 20 years in order to be free of Capital Gains Tax at 19%, although the social tax at 15.5% only disappears after 30.
• If you give a plot of land to someone who builds a new house within 4 years there is an exemption of €100,000 on the value for the calculation of Capital Gains Tax; so if the eventual property is worth €300,000, only €200,000 will be subject to tax.
Elsewhere, a fairer system of calculating family benefits (Allocations familiales) will come into effect, so those earning over €6,000 a month will no longer be eligible. This will save a sizeable chunk of money and seems a very fair measure.
Happy New Year!