France to abolish Taxe d'Habitation

10/07/2018 News Team

The French government will abolish the taxe d’habitation, which raises around EUR 20 billion a year for local authorities, one of two local property taxes on households in France, the other being the taxe foncière.

This was a key manifesto promise of Emmanuel Macron, as he aimed to abolish the tax for 80 percent of households, claiming that it was “unjust”. Since forming a government, he has changed the plan to get rid of the tax completely by 2022, in order to avoid the measure being declared unconstitutional by the French Constitutional Court.

The process will begin this year, with around 30 percent of households becoming exempt, specifically those whose net taxable income is less than EUR 27,000 and couples whose taxable income is no higher than EUR 43,000. These figures increase by EUR 6,000 for each dependant in the household. It is currently unclear whether second homes would be exempt, but there are indications that they will remain liable, or that they will face a higher level of imposition through the taxe foncière or other tax.

Despite the EUR 20 billion loss this will result in, the French government has persisted in its claim that there will be no new tax to replace it. However, it seems the only alternative would be to raise other taxes.

Local councils are outraged by the plan as the tax is the main source of revenue for the municipal councils, the communes/communautés des communes and last year the government set up a working party to look into the issue.

In March the ‘Richard-Bur’ committee published their recommendations, which amount broadly to the transfer of the proceeds of the taxe foncière from the departments to the municipalities, with the departments being compensated by a transfer of VAT receipts, a recommendation the government appears to have accepted.

Although the municipal councils reacted with some relief, it sent the departments into a state of apoplexy, with their association stating their "opposition ferme et définitive" to the idea. Moreover, the report failed to deal with just how the State would manage with fewer VAT receipts.

Bruno Le Maire, the economy minister, stated to the French parliament that he was reviewing whether the reduced rate of VAT on various business activities such as restaurant meals and building work was still appropriate. The reduced rate costs tens of billions a year to the State.

Without a compensatory tax increase then it seems inevitable that abolition of the tax will result in an increase in the level of the public deficit, which will once again put France under threat of sanctions by the EU. 

France only recently avoided budget oversight by the EU, having been in breach of debt rules since 2007, but the deficit continues to be near the limits. In a statement earlier this month the government appears to have accepted that part of the funding will indeed be through an increase in the deficit.

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