Faced with the ongoing budgetary crisis and the efforts required of local authorities, some local elected officials are calling for a reinstatement of the housing tax, but in a slightly different form.
Rarely has a Finance Bill so unleashed passions and unleashed imaginations. Faced with France's chronic budgetary imbalance, the Government and parliamentarians are competing to find ways to save money or new sources of revenue. And in this matter, taxation is particularly fertile ground, since proposals for new taxes are coming from all sides of the political spectrum. The latest one? That of the mayor of Meaux, the indescribable Jean-François Copé, who asks for nothing more and nothing less than the reestablishment of the housing tax, in the form of a new single local tax.
As a reminder, the housing tax on main residences was gradually eliminated for all taxpayers from 2018, before ending completely in 2023 (it remains however maintained for second homes). This local tax was levied for the benefit of the municipalities and constituted almost half of their tax resources. To compensate for the loss of revenue caused by its removal, the departmental share of the property tax was therefore transferred to the municipalities, with the departments recovering a fraction of the VAT proceeds. A zero-sum game of musical chairs for communities, at least in theory.
In fact, the departmental share of property tax was rarely equal to the housing tax income previously collected. When it was higher, the municipalities therefore received over-compensation and, otherwise, under-compensation. To mitigate these side effects, the State then put in place an adjustment mechanism, officially called the Corrective Coefficient and affectionately nicknamed the “CoCo” in tax administration documents – you can’t make this up! This system therefore reduces or increases the property tax revenue, in order to guarantee municipalities compensation “to the nearest euro” for housing tax revenue.
Thus, one might believe that all is well in the best of all possible worlds and that these accounting shambles have had no negative effect on the finances of the municipalities. But things are not that simple, because the abolition of the council tax has had at least two more subtle effects on local taxation. On the one hand, it leads to a loss of financial autonomy for local authorities, a principle enshrined in the Constitution. The Correction Coefficient being a compensation paid by the State, its calculation methods are at the discretion of the Government, which can therefore decide unilaterally to modify them in order to make savings in periods of budgetary crisis. This is exactly the current situation in France.
On the other hand, the disappearance of the housing tax has broken the “fiscal link” between municipalities and certain citizens. Indeed, the main local direct tax that remains is now the property tax, which is paid only by owners and not by tenants. In reality, things are more complex, because if the property tax cannot be re-invoiced to the tenant, unlike the Household Waste Removal Tax, a well-advised owner obviously sets his rent in such a way as to generate profitability, and therefore includes the amount of taxes in its calculation. Ultimately, it is therefore the tenant who pays, indirectly, the property tax relating to his accommodation.
It is nevertheless on this argument of tax fairness that Jean-François Copé's proposal is based to reintroduce local taxation which would apply to all residents, owners and tenants alike. If the mayor of Meaux does not plead for the restoration of the housing tax as such, he puts forward the idea of eliminating the current property tax and replacing it with a new single local tax, the “tax of residence”. This unified levy would, according to the person concerned, restore the equality of citizens in the face of local taxation, while guaranteeing controlled revenues for communities. If the idea is not uninteresting (and not entirely new), it has little chance of succeeding by 2025.
First of all, the Government is particularly hostile to it, the abolition of the housing tax being one of the strong legacies of Emmanuel Macron's first five-year term. Going back on it, even in the disguised form of a “residence tax”, would sound like a terrible turnaround. But above all, such a change in local taxation would require titanic study work upstream, and a profound reorganization of tax services downstream.
A colossal project, impossible to complete between now and the vote on France's 2025 budget, scheduled for the end of November. On the other hand, the Minister of Territorial Partnership and Decentralization, Catherine Vautrin, does not completely close the door to this idea, and suggests that reflections on this subject will begin at the start of next year. To be continued.
