Home » The French 2013 budget: fiscal iniquity and inefficiency

The French 2013 budget: fiscal iniquity and inefficiency


Jean-Philippe Delsol

Tax lawyer, deputy director of IREF

The government’s goal of reducing the budgetary deficit to 3 per cent of GDP is commendable, even though such a deficit will inevitably increase the French public debt as growth will be low or even close to zero. However, the tools applied are both unjust and inefficient.

The iniquity concerns both the retroactive aspect of legislation and its confiscatory nature. The budgetary proposal for 2013 stipulates that earnings on shares sold since 1 January 2012 will be taxed as income, i.e. beyond 500,000 euros these revenues will be taxed at the exorbitant rate of 64,5 per cent. Whereas the 75 per cent rate on professional incomes will only be valid for two years, this new taxation of capital gains is here to stay. Already today, entrepreneurs who have sold shares since the beginning of 2012 thinking they would pay 34,5 per cent will have to have to pay 30 per cent more in tax without warning, which in such proportions is a practice not usually known in civilized countries. Article 2 of the French Civil Code states that “The law only applies to the future; it has no retroactive effect.” Indeed, this rule is not constitutional, but it is part and parcel of our legal order, of the rule of law and the respect for property rights and individual rights as guaranteed by the Constitution.

Similarly, the progressive taxation of revenues from capital gains on building lots, which by 2015 could reach 64,5 per cent, is a form of expropriation without just compensation. These lots are often the property of those who have been selling them for years, and in this case the gains may be close to the selling price because of how the market has developed. Moreover, these goods have generally been subject to the wealth tax (ISF) each year, or inheritance or donation taxes with the passing of each generation.

Subjecting these gains to a 64,5 per cent tax is thus a tax on inflation and a form of plunder, as all these taxes, excises and tariffs tend to encompass the entire value for the sole benefit of the state.

Worse, these measures will turn out to be inefficient because they are confiscatory. Government expects to collect an additional 32,5 billion euros in tax revenues in 2013, but these will not materialize because entrepreneurs have already stopped their planned company sales, real estate owners are worried, senior managers and their executives are moving, those who earn more than 1 million euros will defer their incomes … Capital gains are excessively taxed, but there will no longer be any such gains. The government is paralyzing the economy and drying up the flow. The few incentives it has promised to stimulate real estate sales are but a provisional and illusory artefact. How could any sensible private individual buy a flat with a subsidy equivalent to 18 per cent of its value if he is forced to let it at a rent 18 per cent below that of the market?

The government’s budget proposal assumes a growth rate of 0.8 per cent, but at the same time it slashes growth by skinning taxpayers alive, whereas it should give them the means to consume, invest and undertake, which they know better how to do than the government itself. “The day is coming when only taxes will be left on our bones”, said Michel Audiard in the movie La chasse à l’homme. Let us hope that the French Constitutional Council and other courts will react before this happens.

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