French Bosses Might Profit from a « Green » Fiscal Trick

A real hold-up might well be taking place before us.

Translated Saturday 25 July 2009, by Isabelle Métral and reviewed by Bill Scoble

The planned carbon tax is meant to make French people compensate for that portion of the local tax on businesses (Taxe Professionnelle) that is shortly to be slashed. Is a hold-up actually taking place before our eyes? The question is well worth asking in view of the first concrete provisions that have been made public to reform the local tax on businesses; indeed, the main benefit of those provisions will go to businesses; in addition to that, the first recommendations concerning the carbon tax will hit consumers mostly.

The link between the two proposed reforms owes little to chance, for it has its origin in statements Sarkozy made earlier this year. In order to “lighten taxes on businesses” so as to protect jobs and job creation, he proposed “doing away with the local tax on businesses”, and seeing the general outcry among local councillors, immediately declared that this tax would be replaced with the carbon tax. Besides the fact that a tax cut (whether an exemption from the local tax or from the employers’ social contribution) has never dissuaded any firm from laying off workers or relocating production when shareholders’ interests are at stake, many councillors’ associations observed that replacing the local tax on businesses with the carbon tax would imply shifting the tax burden onto French households. Indeed 30 to 40% of that carbon tax might be borne by them.

To be sure, the government’s current propositions for the reform of the local tax on businesses are no longer a simple repeal of the tax; nor do they simply replace it with the carbon tax. Sarkozy’s government intends to cancel a large portion of the tax, that which targets plants and real estate, and replace it with a tax on the added value (VAT) with progressive rates depending on turnover. This pleases the French employers’ association (MEDEF), for it means all the benefit will go to them. As for the jobs….

Indeed, those provisions will clearly not suffice to compensate for the fiscal losses incurred by local governments. These losses will have to be compensated for by state subsidies the relative value of which, as experience has taught local councillors, decreases year after year. This is bound to affect the diversity and the quality of local public services as well as the level of household taxes, to compensate for the losses.

But to increase state subsidies, the government - since it refuses to
increase the public deficit - needs new tax revenues. And new revenues are levied on French people and not on businesses, Sarkozy’s pet priority. Hence the carbon tax, which should be paid in part by households, and which will partly contribute what businesses will no longer supply thanks to the reform of the local tax on businesses. And so the two reforms add up right, following Sarkozy’s plan: fewer taxes for firms means more taxes for households.

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