French fiscal package of 2007
Encyclopedia
The French fiscal package of 2007 is a series of measures implemented by the Fillon
administration in 2007. The paquet fiscal is often called in France loi TEPA, referring to the law in favor of labor, employment and purchasing power (in French loi pour le travail, l’emploi et le pouvoir d’achat). The package consists of fiscal measures aiming at lightening the fiscal burden on businesses, liberalize the labor market and stimulate investment.
in 2007 as President of the French Republic, as a strong ideological value. According to the official text, "The revival of the economy requires in priority the rehabilitation of work as a value, as a tool to improve the purchasing power and to fight unemployment".
The exemption on overtime would represent a loss of 6 billion euros for the state budget.
The cost of the reduction to 60% of the tax shield
would be 600 million euros, the reform of inheritance tax would cost 1.7 billion euros and the cost on interest paid to purchase the primary residence would be of 3.7 billion euros.
The government claimed that will not thwart the European requirements on the recovery of public finances. The government was to announce a reform policy of the State (the "general review of public policies"), which would generate significant savings, for example by not replacing an official two who retired.
During the political debate in the National Assembly and the Senate, there were concerns about the compatibility of the measures announced with the state of public finances. In particular, the government claimed that these measures would help raise growth to 2.5% in 2008 while the specialized institutes, including the INSEE
, forecast that it would not exceed 2.1%.
Others worry over effects in the medium and long term. In case of the failure of the measures to dynamize economic growth, the government would be forced to seek new revenues to fill gaps and comply with the commitments made at European level (reducing the debt below 60% of GDP by 2010 or 2012). The risk would be an increase in taxes (VAT, CSG and CRDS) with a bad impact on the purchasing power and reducing consumption of some households by 2009.
The parliamentary opposition and the main trade unions consider that this tax package is first "socially unfair". These criticisms referred to the lowering of the tax shield and the deduction of a portion of the interest to acquire the principal residence, which would benefit first to the biggest borrowers, and possibly causing a rise in property prices detrimental to the poorest buyers. Similarly, the exemption of overtime benefit to only a minority of employees in growing sectors and could have a counter-productive effect by limiting new hirings. In addition, these measures mainly benefiting wealthier classes would have a limited impact on consumption.
François Fillon
François Charles Armand Fillon is the Prime Minister of France. He was appointed to that office by President Nicolas Sarkozy on 17 May 2007. He served initially until 13 November 2010 when he resigned from being prime minister before a planned cabinet reshuffle.On 14 November 2010, Sarkozy...
administration in 2007. The paquet fiscal is often called in France loi TEPA, referring to the law in favor of labor, employment and purchasing power (in French loi pour le travail, l’emploi et le pouvoir d’achat). The package consists of fiscal measures aiming at lightening the fiscal burden on businesses, liberalize the labor market and stimulate investment.
Aims
The bill on labor, employment and purchasing power (TEPA), whose main measures are often commonly known as the paquet fiscal (tax package) shall be beneficial to growth. According to the Fillon administration, shaping a taxation system more favorable to businesses and lower labor costs could encourage the growth of purchasing power, productive investment and the attractiveness of the territory. This measure, implemented short after the election of Nicolas SarkozyNicolas Sarkozy
Nicolas Sarkozy is the 23rd and current President of the French Republic and ex officio Co-Prince of Andorra. He assumed the office on 16 May 2007 after defeating the Socialist Party candidate Ségolène Royal 10 days earlier....
in 2007 as President of the French Republic, as a strong ideological value. According to the official text, "The revival of the economy requires in priority the rehabilitation of work as a value, as a tool to improve the purchasing power and to fight unemployment".
Measures
- Overtime: OvertimeOvertimeOvertime is the amount of time someone works beyond normal working hours. Normal hours may be determined in several ways:*by custom ,*by practices of a given trade or profession,*by legislation,...
will be paid 25% higher than normal hours in all companies. These hours will be exempt from income tax and payroll taxes. This measures has applied in the private sector from 1 October 2007.
- Inheritance tax: the cost of succession will be totally eliminated for the surviving spouse (married or bound by a PACS). The inheritance taxInheritance taxAn inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...
should be eliminated for 95% of direct inheritance. Donations to children and grandchildren will be encouraged by tax exemptions.
- Interest loans for the acquisition of primary residence: a tax credit of 20% on interest loans will be distributed to households over 5 years for the acquisition of their principal residence. This credit will be capped at 3 750 euros per person and 7500 for a couple, with an increase of 500 per dependent. This tax credit will be paid directly to households not subject to taxation.
- Work of students: exemption from income tax for up to 3 times the minimum wage for employed students under 26.
- Wealth tax: money invested in the capital for SMEs will be deducted from the solidarity tax on wealthSolidarity tax on wealthThe solidarity tax on wealth is an annual direct wealth tax on those in France having assets in excess of €800,000, . It was one of the Socialist Party's 1981 electoral program's measures, 110 Propositions for France...
(ISF), up to 50 000 per year. It also include investments in reinsertion bodies, teaching institutions and research foundations. The relief on the principal residence in the calculation of the ISF will be increased to 30%.
- Tax Shield: the share of income that can be taken by direct taxes, including CSG and CRDS, will be reduced from 60% to 50%.
- Golden parachutes: the payment of benefits to business leaders will be linked to their performance. The conditions are to be set by the set at the boss' arrival by the board of directors.
- Experimentation of the active solidarity revenue (RSA): The departments willing to do so can implement this solidarity Revenue (RSA), which should ensure an increase in income for all recipients of the RMI accepting a job for a period up to 3 years.
Cost and financing
The cost of these measures was assessed by the government to 13,6 billion euros per year.The exemption on overtime would represent a loss of 6 billion euros for the state budget.
The cost of the reduction to 60% of the tax shield
Tax shield
A tax shield is the reduction in income taxes that results from taking an allowable deduction from taxable income. For example, because interest on debt is a tax-deductible expense, taking on debt creates a tax shield...
would be 600 million euros, the reform of inheritance tax would cost 1.7 billion euros and the cost on interest paid to purchase the primary residence would be of 3.7 billion euros.
The government claimed that will not thwart the European requirements on the recovery of public finances. The government was to announce a reform policy of the State (the "general review of public policies"), which would generate significant savings, for example by not replacing an official two who retired.
Debate
The government relied on the effect of the measures announced and considers that they will both stimulate work (overtime and facilitated transmission of wealth) and increase investment in increasing the attractiveness of the French territory for owners of capital available for investment (tax shield). The parliamentary debate showed that even in the majority, some remained skeptical about the effectiveness of this tax package. the opposition also insisted in the "social unfairness" of several measures.During the political debate in the National Assembly and the Senate, there were concerns about the compatibility of the measures announced with the state of public finances. In particular, the government claimed that these measures would help raise growth to 2.5% in 2008 while the specialized institutes, including the INSEE
INSEE
INSEE is the French National Institute for Statistics and Economic Studies. It collects and publishes information on the French economy and society, carrying out the periodic national census. Located in Paris, it is the French branch of Eurostat, European Statistical System...
, forecast that it would not exceed 2.1%.
Others worry over effects in the medium and long term. In case of the failure of the measures to dynamize economic growth, the government would be forced to seek new revenues to fill gaps and comply with the commitments made at European level (reducing the debt below 60% of GDP by 2010 or 2012). The risk would be an increase in taxes (VAT, CSG and CRDS) with a bad impact on the purchasing power and reducing consumption of some households by 2009.
The parliamentary opposition and the main trade unions consider that this tax package is first "socially unfair". These criticisms referred to the lowering of the tax shield and the deduction of a portion of the interest to acquire the principal residence, which would benefit first to the biggest borrowers, and possibly causing a rise in property prices detrimental to the poorest buyers. Similarly, the exemption of overtime benefit to only a minority of employees in growing sectors and could have a counter-productive effect by limiting new hirings. In addition, these measures mainly benefiting wealthier classes would have a limited impact on consumption.