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French Budget 2014: the impact of the new fiscal measures

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French Budget 2014: the impact of the new fiscal measures

Authors: Antoine Bozio, Malka Guillot, Marianne Tenand

Contact: antoine.bozio@ipp.eu, malka.guillot@ipp.eu, marianne.tenand@ipp.eu

Synthesis

note-ipp-9-visuelIn the midst of the American shutdown crisis, the French government released its budget proposal for 2014. In line with European Union requirements, the French budget aims at reducing the public deficit, while putting an emphasis on the reduction of public spending. Although tax increases are not as high as those from the previous two years, they still amount to € 2.7 billion or 0.1% of national income. In addition to providing an overview over public finance trajectory, this note analyses the redistributive impact of  the key tax measures announced in the budget. The changes in the rules for the personal income tax are limited and they primarily affect the individuals in the top income decile; the increase in the rates of Value Added Tax is a slightly redistributive measure because of the rise of the intermediary rate (that applies to dining and catering services, among others). However, many questions are still unanswered, regarding both the impact of the CICE (tax credit for competitiveness and employment) and the efficiency of the measures supposed to reined in public spending.

Key points

  • The 2014 budget intends to reduce public deficit by continuing tax increases (+ 0.1 % of GDP) and reducing public sending (- 0.3 % of GDP). By comparison, the 2013 budget increased taxes by 1.0 % of GDP.
  • Changes to the income tax will mainly affect the 10 % of households with highest income through the reduction of the tax advantage provided by the quotient familial (through which the number of children is taken into account to compute the tax liability).
  • The increase in the Value Added Tax will affect all households. The top income decile is the most affected because of the increase in the VAT intermediary rate.
  • The tax credit on competiveness and employment (CICE) should decrease hourly labor cost by more than 1.5 % on average for the 90% workers with the lowest gross hourly wage.

Download the associated press release (in french)