Budget deficit and tax increases

What is tax? 🧾 Tax is a mandatory contribution paid by individuals and legal entities (businesses, administrations) to finance public services.

What is tax? 🧾

Tax is a mandatory contribution paid by individuals and legal entities (businesses, government agencies) to finance public services. There are two main categories:

• Direct taxes : such as income tax or corporation tax, levied directly from the taxpayer.

• Indirect taxes : such as VAT, included in the selling price of goods and services.

In France, direct taxes represent approximately 75% of tax revenue. They can be national (e.g., income tax) or local (e.g., property tax), and are calculated according to a proportional rate (the same for everyone) or a progressive rate (which increases with income).

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Distribution of tax in France for 1 billion Euros of tax collected.

A worrying budget situation 📉

Where does France stand? 📊

The state's financial situation is critical. The public deficit could reach 7% of GDP by 2025, a figure well above the 3% required by European rules. The Barnier government has stated its intention to balance the books, but what room for maneuver does it have?

France already has one of the highest tax rates in Europe. It would take approximately €60 billion to reduce the deficit to 5% of GDP by 2025, a complex objective in a constrained economic context.

The first proposals from the Barnier government 🏛️

Towards a targeted tax increase? 🎯

Even though the focus is on reducing public spending, the government will not be able to avoid an increase in tax revenues. However, there is no question of making these increases widespread.

The preferred option? A "high-income exceptional contribution" (HEIC) . This would only affect 0.3% of households , specifically those with incomes exceeding €500,000 . This measure could generate approximately €2 billion , in line with the principles of tax fairness. It would be temporary and would aim to encourage wealthier households to contribute more to the budget.

Objective: to broaden the contributor base 📈

This strategy aims to avoid increasing the tax burden on the middle and working classes, while maintaining the revenue necessary for a balanced budget. It reflects a commitment to tax fairness in the face of pressure on public spending.

Any other avenues being explored? 🔍

Besides the CEHR, several proposals are circulating:

• A 40% increase in the TICFE (domestic tax on final electricity consumption).

• Exceptional contributions from approximately 300 large companies .

• A strengthened green tax , with increased taxation on pollutants or activities deemed harmful to the environment.

These measures could help to better balance the accounts while addressing environmental challenges.

The government is due to present its draft budget in the coming days, with a vote expected before December 31 .

What should you do as a saver? 🛡️

At Evvest , we remain particularly vigilant regarding the potential elimination of certain tax breaks as part of this budget reform. We are closely monitoring the progress of parliamentary debates and their implications for your savings.

In the meantime, we continue to recommend robust tax-efficient investment vehicles such as:

• Life insurance : flexibility, advantageous taxation after 8 years, a tool for transferring assets.

• The Retirement Savings Plan (PER) : tax optimization upon entry, ideal for high incomes.

• The Equity Savings Plan (PEA) : tax exemption on gains after 5 years (excluding social security contributions).

Conclusion: Stay informed and diversified 🧠

The current budgetary context necessitates ambitious tax reform , but initial proposals appear to target high earners and large corporations. As a saver, it is essential to stay informed , diversify your savings , and take advantage of investment vehicles that still offer significant tax benefits .

At Evvest , our mission is to support you in this changing landscape, helping you adjust your wealth management strategy with serenity and efficiency.