Tax Analysts Blog

Macron’s ‘Revolution’ Unlikely to Extend to Tax Policy

Posted on Jul 5, 2017

French President Emmanuel Macron has radically reshaped the politics of his country in many ways. He crushed the Socialist Party candidate in the first round of the presidential elections, going on to easily defeat the National Front’s Marine Le Pen in the second round. And his new party secured an outright majority in Parliament, relegating the Socialists to a small minority, while the right-leaning Republican Party (the old Gaullists) saw their representation nearly slashed in half. But on economic and tax policy, Macron is far less of a revolutionary. In fact, his tax policies should be very familiar to those used to former President Francois Hollande’s odd pro-business version of socialism.

Macron is a former member of Holland’s Socialist government who left to run as a centrist candidate in the presidential elections. While he certainly was to the right of candidates like Jean-Luc Melenchon, Macron is not that close politically to Republicans, the party of former President Nicolas Sarkozy (represented in the election by Francois Fillon). Macron was able to position himself as a centrist primarily because of Fillon’s scandals and the extreme positions taken by Le Pen, whom he beat by a vote of 66 percent to 34 percent in the final round. 

As economy minister, Macron tried to reconcile business with socialism. And he would continue that line of policy as president. He has pledged to reduce the corporate tax from 33 percent to 25 percent. He would continue billions of euros in incentives started by Hollande. While pledging to protect the 35-hour workweek, he has proposed allowing businesses to negotiate true work hours with employees, which would push actual hours worked closer to the nominal limit.   

Macron’s biggest proposal on the individual side is to reform France’s wealth tax into a property tax. This was controversial during the presidential campaign, where his plan was attacked by both the right and left. He has pledged to make sure that the reformed tax doesn’t affect financial investments or products and is focused more on held property. During the campaign, Macron talked about lowering taxes on investment income (think capital gains), which can be as high as 49 percent, but he has not put forward many specifics.

The new president plans to change the rules for the taxe d’habitation, which applies to about 70 percent of households. Macron would like to do more than reverse than percentage, with 80 percent becoming exempt.

The goal of Macron’s tax program is to stimulate the economy. French unemployment remains above 10 percent, far higher than Germany (4 percent) and the United Kingdom (5 percent). But he wants to do that while protecting the size of the French public sector, an important difference between his government and the Republicans. He called for €50 billion more in infrastructure spending over the next five years. He would offset that with €60 billion in cuts, but almost all of those projected cuts are in unemployment benefits – which would only be realized if Macron’s policies resulted in higher employment. 

Socialism has changed in France (and the party with that name has been all but wiped out in the legislature). Hollande ran against Sarkozy and won on a leftist platform that proved unrealistic once he took office and confronted economic reality. For the last three years, Macron has been at the head of the Socialist government’s efforts to improve business conditions. His platform as president is basically a mirror of his proposals when he was in government.

Macron claims to be a revolutionary, but those hoping for a marked change from the Hollande government are likely to be disappointed.

Read Comments (2)

Mike55Jul 6, 2017

While Macron's policy proposals may not be revolutionary, his ability to execute them could be. Hollande lacked the political capital and charisma required to achieve meaningful reforms (and the weird scooter fiasco certainly didn't help matters). In contrast Macron is empowered by a landslide electoral victory, supposedly a political savant, and appears to have a stable personal life.

France probably doesn't need aggressive new policy ideas at the moment, but instead someone capable of fixing obvious problems. Many like to describe Hollande's government as an oxymoron: the pro business socialists. But I think an equally valid description of the situation is that France's labor laws and welfare system are so blatantly unsustainable that even socialists could not deny the need for reform. If Macron can rationalize these systems, it'll go a long way.

Mike55Jul 13, 2017

William Hoke's article today provided an update on this subject: Macron is indeed serious about tax reform. The French investment tax will drop from a 65%* top rate to a 30% top rate, the property tax regime will be reformed, and a withholding tax regime on wages will be implemented (sort of amazing to think France doesn't have this yet).

From the outside looking in, it almost feels like these tax cuts will generate more revenue. I appreciate that in the U.S. we have heated debates over whether tax cuts are in part self-funding, but that's in the context of our (relatively) low taxes. You'd have to think cutting a 65% MTM investment tax would spur serious growth, right? Not to mention the new withholding tax regime, which sounds like a big revenue raiser.

*Calculated on a mark-to-market basis! Yikes!

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