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

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

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

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.