Faced with the risk of censorship, and therefore of not voting on the 2025 budget, the government has threatened an increase in income taxes.“almost 18 million French people will see their income taxes increase,” Prime Minister Michel Barnier said on France 2 and TF 1 on Tuesday evening. Others will pay for the first time because we failed too include the planned reindexation in the budget law.”.
If the 2025 budget is not voted on,a “special law” project it might very well be submitted to Parliament and it is indeed then the 2024 one that would be renewed. However, “throughout the year, there was inflation and the 2025 budget planned to correct it,” explains Stéphanie Villers, economist at PwC France, to the Parisian.As for taxes, this must lead to an increase in tariffs.
In France there are five tax brackets : a single person (one share) who receives up to 11,294 euros of net income per year dose not pay taxes. Then 11% on income up to 28,797 euros, 30% then up to 82,341 euros, 41% up to 177,106 euros and 45% beyond. The 2025 Budget envisaged increasing these scales according to inflation, increasing by 2.2%: such as, to be taxed in 2025 you had to have earned more than 11,520 euros.
This increase in rates was to allow people who saw their salaries increase due to inflation not to pay too much additional tax. Except that, in the event of a freeze, “the tranches will not follow the evolution of inflation”, indicates Stéphanie Villers.And in reality it’s not so much that the French actually earn more, it’s that their salaries have already been revalued according to inflation.”
In total,”17.6 million families would see their income taxes increase compared to a situation of indexation to inflation”, estimated the OFC (French Observatory of the Economic Situation) in October.
Middle-income families “would lose between 50 and 100 euros a year”
But even if you’re not at the limit of a tax bracket, these could increase. In fact, net income is not taxed uniformly. If a person earns 25,000 euros a year, he does not pay 30% on all his income, only those that exceed 11,294 euros are taxed. In the event of a salary increase but a freeze on the scale, the share placed in the taxable bracket would thus increase mechanically.
According to Pierre Madec, however, “the effects are relatively weak because it is a fraction of your income that will be taxed a little more.” A single taxpayer who declares 11,400 euros, and is therefore taxable, is now taxed at 11% on the 105 euros that exceed the threshold, i.e.11.5 euros.
“In the event of a freeze, families close to the median living standard would lose between 50 and 100 euros per year compared to an indexation situation as usualthe economist explained in October, or between 0.2% and 0.3% of their annual standard of living. » «This would exceed 250 euros for the richest 15% of families (the poorest three twentieths),he adds. But the richest would be relatively less affected than others, due to the low progressivity of the tax in the highest brackets.»
This freeze, if it materializes with the fall of Michel Barnier, could though be corrected in the weeks or months to come, with the vote on a new budget that would bring indexation back to inflation. Provided that there is a government capable of doing so.
How can the French goverment improve transparency regarding the budget process to gain public trust?
Interview between time.news Editor and Stéphanie Villers, Economist at PwC France
Editor: Welcome, stéphanie! Thank you for joining us today. As you know,the French government is facing ample challenges with the 2025 budget. Can you start by summarizing the situation for our readers?
Stéphanie Villers: Absolutely! As you’ve noted, the government is in a precarious position. Prime Minister Michel Barnier has announced that nearly 18 million French citizens will see an increase in their income taxes if the 2025 budget is not approved. This situation arises from concerns about potential censorship and the ramifications of failing to pass the budget.
Editor: That sounds quite alarming. What are the main reasons behind this potential tax increase?
Stéphanie Villers: The main reason can be traced to the government’s inability to integrate the planned reindexation into the budget law. this oversight means that individuals who have not previously faced income taxes may find themselves paying for the first time. Additionally, the budget aims to address the inflation challenges that have persisted throughout the year, wich, without corrective measures, could lead to increased living costs for citizens.
Editor: Captivating. You mentioned a “special law” project that might come into play if the budget does not pass. Could you elaborate on that?
Stéphanie Villers: Certainly! If the 2025 budget is not voted in, it could trigger the submission of a “special law” to Parliament. This might allow the government to extend the existing budget for 2024. However,this is more of a temporary stopgap and does not address the pressing issues that need resolution—like inflationary pressures and new tax regulations.
Editor: Given these circumstances, what do you believe are the potential long-term implications for the French economy if the budget continues to face delays or obstructions?
Stéphanie villers: If the budget remains unapproved, we could see increased economic instability. Higher taxes could dampen consumer spending, which is crucial for growth, especially during inflationary periods. Moreover, persistent budgetary uncertainties can erode investor confidence and hinder strategic long-term planning, which is essential for economic recovery and growth.
Editor: That is a crucial point. What strategies would you suggest the government implement to navigate this challenging landscape?
Stéphanie Villers: The government should focus on transparency and clear communication with the public to reduce uncertainty. they also need to explore alternative revenue sources or measures that could alleviate the pressure on taxpayers. Importantly, a comprehensive reform plan that addresses structural issues in the economy—such as unemployment and social inequalities—could foster a more sustainable economic environment.
Editor: Thank you, Stéphanie. It’s clear that the situation is complex and requires careful management. Before we wrap up, is there anything else you’d like to add about the current budget discussions?
Stéphanie Villers: Just that it’s essential for both the government and citizens to engage in constructive dialog during this period. Budgets are not just numbers—they impact lives and livelihoods. Addressing these issues collaboratively will be vital for France’s economic health moving forward.
Editor: Wise words, stéphanie. Thank you for your insights today. We appreciate your expertise on this important topic.
Stéphanie Villers: thank you for having me! It’s always a pleasure to discuss such critical issues affecting our economy and society.