France's UMP Narrowly Escapes Amendment To Tax Shield

by Ulrika Lomas, Tax-News.com, Brussels

20 October 2009

France’s highly controversial tax shield, or “bouclier fiscal”, is becoming increasingly unpopular, even among key members of the French President’s own parliamentary group, the Union for a Popular Movement (l’Union pour un Mouvement Populaire - UMP).

During a recent meeting of the French National Assembly Finance Committee, the UMP narrowly voted to reject an amendment put forward by the New Center Party (le Nouveau Centre - NC), aiming to remove social contributions and local taxes from the country’s tax shield. Presented by Charles de Courson (NC), and co-signed by UMP members René Couanau and Jean-Yves Cousin, the amendment was finally rejected by 23 votes to 18.

The tax shield was created in 2007 and modified in 2008, and limits direct taxes in France (income tax, wealth tax, and local taxes such as dwelling and real estate tax) to 50% of income; the tax shield also includes social contributions levied in France – the general social charge (la contribution sociale généralisée – CSG), and the tax to provide resources for the repayment of France’s social debt (la contribution pour le remboursement de la dette sociale – CRDS). Any excess over the 50% threshold may be recovered from the tax authorities, thus honoring President Sarkozy’s pre-election pledge that no one will pay any more than half of what they earn in taxes.

Since then, the tax shield has become an embarrassment for the government. Given the scale of social debt in France, thought to amount to around EUR170bn, a rise in social levies appears almost unavoidable. Yet if social contributions are to increase, opposition to the tax shield will continue to mount. Even the parliamentary budget rapporteur Gilles Carrez has expressed his determination to back changes to the shield, should social charges rise.

In its recent parliamentary report on the optimization of public spending in France, the law commission also urged the government to remove the social debt repayment contribution from the country’s tax shield. The report concluded that such a move would be fully justified, given the “exceptional” scale of the country’s social debt. Indeed, the chairman of the law commission, Jean-Luc Warsmann, referred to the repayment of France’s social debt as a moral obligation.

The parliamentary offensive is set to continue during the forthcoming examination of the country's Social Security budget bill.

Recommended