Macron’s necessary reform to support the industrial sector

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  A key measure, part of the EUR100bn stimulus package unveiled last week by the new French government, has attracted a lot of attention in business circles. The government has proposed to cut taxes on production by EUR10bn each year until at least 2022. This measure should be enforced next year, but uncertainty remains whether it will be extended beyond 2022 (after the presidential election). Taxes on production have been regularly criticized by employers' organizations for penalizing productivity and competitiveness. "It is a major announcement for the French economy. For decades, the industrial sector has been waiting for such a measure", commented on Twitter the former head of the main employers' organization in France, Laurence Parisot.


Taxes on production are higher in France than almost anywhere else in Europe: Taxes on production in France form a very heterogeneous set of compulsory levies that are mostly paid by companies but not only since property tax, which is paid by homeowners, is also labeled under this name in national accounting. Taxes on production refer to more than a dozen levies with low unit revenue yield. Actually, 13 different types of taxes make up around 80% of total tax revenue. The most important taxes are the contribution sociale de solidarité des sociétés (C3S, corporate social solidarity contribution) on turnover, the cotisation foncière des entreprises (CFE, business property contribution) and the cotisation sur la valeur ajoutée des entreprises (CVAE, contribution on business value added) on business value added. The C3S is particularly criticized by companies because the tax is applied at each stage of production, thus limiting incentives to localize the whole value chain in France and affecting productivity negatively. Based on Eurostat data, taxes on production are higher in France than almost anywhere else in Europe, with the exception of Sweden where, contrary to most other European countries, social protection is mostly financed by taxes and not by social contributions. In France, taxes on production are equal to 4.9% of GDP versus 2.2% in the Eurozone and only 0.7% in Germany.

A welcome measure to reduce the competitiveness gap between France and Germany: The decision to cut taxes on production by €10bn each year until at least 2022 is a significant and timely move to reinforce business competitiveness and close the gap with Germany. This is a new addition to the comprehensive set of pro-growth reforms implemented by Macron to unlock the French potential. On top of it, this is a larger tax cut than that asked by employers (€5bn per year). When implemented, this welcome decision should reduce the gap by one-third between France and Germany when it comes to taxes on production. At this stage, it is still unclear which tax the government is set to scrap or reduce due to ongoing negotiations, but it would certainly be a decisive progress for companies if it would be the C3S (corporate social solidarity contribution).

Long term uncertainty remains : In the long run, uncertainty remains whether the tax cut will be extended beyond 2022 and the presidential election. The government has not indicated yet whether it is a permanent tax cut or whether it is a temporary measure to help businesses restarting production and dealing with the economic shock related to the COVID-19. It is likely that no final decision has been made at this stage. There is no hurry to act since the recovery plan, which includes tax cut proposal on production, is expected to be passed in September after the parliamentary recess.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.