France’s Prime Minister Edouard Philippe announced this week that the Macron administration plans to slash the corporate tax to 25 percent by 2022.
In his first policy speech, Phillippe told members of France’s National Assembly that the tax cut would encourage “businesses…to set up and develop on our territory rather than elsewhere.”
According to Philippe, this scaled corporate tax cut would ultimately bring France “in line with the European average.”
Public Spending & Debt to Drop in France Too
Alongside the corporate tax reduction, Philippe said the country would look into slashing public spending from 56 to 53 percent of GDP, already one of the highest rates in Europe.
Philippe referred to France’s debt and its public spending policy as “intolerable” and “dancing on a volcano” that could erupt at any time.
“The French are hooked on public spending,” Philippe said, adding that, “like all addictions it doesn't solve any of the problems it is meant to ease” and “like all addictions it requires willing and courage to detox.”
Philippe emphasized his point by noting that “for every 100 euros Germany raised in taxes it spent 98 euros, while France spent 125 euros for every 117 euros levied in taxes.”
As reported by RTE, the French government will look to curtail public spending “by controlling the public sector wage bill, scrapping all tax loopholes and adopting a more results-driven approach to spending in areas such as housing and professional training.”
At the moment, France’s debt adds up to close to 2.15 trillion Euros, which puts the country in grave danger to speculators.
According to MarketWatch, Bank of France’s Governor Francois Villeroy de Galhau urged Macron in a letter to reign in public debt and “comply with the European Union's deficit ceiling of 3% of economic output, deferring tax cuts if necessary.”
Galhau warned the President that the country might go through a “sovereign debt shock” if its public spending remains at current levels and interests rates increase.
Will France’s Onerous Wealth Tax Be Reduced?
Philippe also confirmed that many of Macron’s other proposed reforms would take place, albeit with some delay.
The Guardian reports that “the loosening of labour laws to “free up” business” will happen, “but the timescale for some flagship tax cuts – such as reducing housing tax – could be pushed back, coming into effect between now and 2022.”
More specifically, France’s wealth tax, which Macron vowed to reform, will remain untouched until 2019.
As explained by International Adviser, “France currently imposes an annual wealth tax of 0.5% starting on assets over €900,000 (£762,000, $990,000), increasing gradually to a top rate of 1.5% to anything over €10m.”
This hefty wealth tax, in combination with “some of the world's highest rates of income tax (the top rate is 45%)” as laid out by International Adviser, has forced more than 12 thousand French high net-worth individuals to leave the country.
Macron’s Opposition Speaks Out on Reforms
Leftist French leader Jean-Luc Mélenchon wasn’t too thrilled by Philippe’s announcement and called on his supporters to put together protest rallies on July 12.
As reported by Channel NewsAsia, Mélenchon urged his backers to stage “a nationwide day of protest next week against government plans for spending cuts and pro-business tax and labour reforms.”
During an interview on BMF TV, Mélenchon heavily criticized Macron, saying that the French President is "becoming intoxicated by his omnipotence" and mistakenly “thinks he can fix all the problems by force.”