IPP Policy Brief n°9 - November 2013

French budget 2014: the impact of the new tax measures?

ipp-illustration-note-9IPP Policy Brief n°9

November 2013

Authors: Antoine Bozio, Malka Guillot, Marianne Tenand

logo-pdf-min-2French budget 2014: the impact of the new tax measures?

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Summary:

Released at the end of September, the 2014 French Budget aims to reduce the public deficit by restricting public spending. While the announced tax reforms are less radical than those implemented in the previous two years, they project an additional increase in revenue of 2.7 billion euros (that is, 0.1% of GDP). This note presents an overview of the evolution of public finances and an analysis of some of the announced tax measures that will affect expected revenues for the 2014 financial year. Changes to income tax are limited and mainly affect those in the highest income decile; the increase in VAT also has a mildly redistributive effect, thanks to the increase in the intermediate rate. There remain, however, a number of unknown effects relating to the impact on employment of the tax credits for competition and employment (CICE) scheme and the effectiveness of the announced spending cuts.

Key points:

  • The 2014 French Budget expects to reduce the public deficit by increasing tax and social security contributions (+ 0.1% of GDP) and cutting public spending (-0.3% of GDP). In comparison, the 2013 budget raised taxes by 1% of GDP.
  • The changes to income tax are limited and chiefly affect only those in the top 10% of households, through the introduction of a cap on the tax advantage provided by the family quotient (through which number of children is taken into account when calculating the tax liability).
  • The increase in VAT rates will affect all households but will have slightly more impact on higher-income families because the highest increase is to the intermediate rate.
  • The CICE should push down the hourly cost of employment by at least 1.5% for 90% of employees on the lowest hourly rates. Its impact on employment and wages remains uncertain.

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