In the event of censorship, the income tax scale may not be indexed to inflation as planned, leading to a mechanical increase in taxes. But this possibility, raised by the government, could be corrected during the year 2025.
Risk of “shutdown”, increased taxes, frozen pension payments… As the noose tightens on the government of Michel Barnier, threatened with censorship on Wednesday November 4 after the Prime Minister used the article 49.3 to have the Social Security budget adopted, the executive warns of the consequences of a France without budgetary texts. Interviewed on TF1 and France 2, the tenant of Matignon affirmed that “nearly 18 million French people will see their income tax increase (…) because we will not have been able to include in the finance law the reindexation which is planned, which I have planned”. “No budget means lose, lose, lose”had already warned Laurent Saint-Martin, the minister responsible for the Budget and Public Accounts, in The Parisian.
Without the 2025 finance bill, currently being examined in the Senate and which could also be subject to censorship if the government does not fall by then, the Minister of Economy and Finance, Antoine Armand, has mentioned “perverse mechanical effects” on income tax. “As it would not be indexed to inflation, its scale would then remain identical to that of the year 2024. 380,000 French people who were not subject to tax will pay it. More generally, more than 17 million taxpayers would see their income tax increase”developed the minister in The Sunday Journal. If the reasoning is correct, it ignores possible correction mechanisms during the year 2025.
If the government falls, the budgetary texts discussed since October – classic budget known as the finance bill, the Social Security budget and the end-of-management finance bill – could not be adopted. An option then emerges: while waiting for a new budget, “un special bill” could thus be submitted to Parliament, as stipulates this in article 45 of the Constitution. “This would allow the tax to be lifted on January 1”explains constitutionalist Thibaud Mulier, teacher-researcher at Paris-Nanterre University. Clearly, this special bill would be a “pure renewal” of the provisions provided for in the 2024 budget, summarizes Anne-Charlène Bezzina, lecturer in public law, at LCP.
Thus, the income tax scale, which was to be increased by 2% in the finance bill for 2025 to take into account inflation and more particularlyincrease in household incomewould remain at the level of that voted for the 2024 budget. The brackets of the income tax scale would therefore not follow the rise in prices, estimated by INSEE at 2% for 2024. Without indexation, itThis would theoretically lead to an increase in the tax burden for 2024 income which is set in the 2025 budget.
To argue that “more than 17 million taxpayers” would pay more taxes, the government is basing itself on a study by the French Observatory of Economic Conditions (OFCE) published at the beginning of October. The OFCE had thus calculated the impact of freezing the income tax scale, an option then considered by Michel Barnier when constructing his budget. The tax revenues from such a measure had been estimated at “3 billion euros” and the organism noted that 17.6 million households would see their taxes increase.
The tax scale is broken down into six brackets and the first, below 11,294 euros of annual income, is not taxable. If the scale did not change, the start of the second tranche, from which a person is taxable at 11%, would thus remain at 11,295 euros instead of the amount revised to 11,520 euros in the 2025 finance bill. The start of the third tranche would remain at 28,798 euros (instead of 29,373 euros) and so on.
“If we do not neutralize the effects of inflation, a certain number of people who are not eligible for tax will become so.”
Mathieu Plane, economist at the OFCEat franceinfo
The government believes that “380,000 French people” who do not pay income tax will move into the second bracket and will have to submit to it. In 2012 – one of the last years where a freeze on the tax scale was decided by the government – the number of taxed households had increased by 939,000, noted the Court of Auditors in a report published in 2015.
“If the finance law is not passed, and salaries increase without the scale changing, those who are just below the different tax brackets will change brackets, and therefore pay more taxes.summarizes Simon-Pierre Sengayrac, economist at the Jean-Jaurès Foundation. “Everyone who pays will pay more”warns Mathieu Plane. The OFCE estimated, in October, that“in the event of frost, households close to the median standard of living [24 179 euros selon l’Insee] would lose between 50 and 100 euros per year compared to a usual indexation situation, i.e. between 0.2% and 0.3% of their annual standard of living”. According to the OFCE economist, indexing the income tax scale to inflation or to changes in household income is “the norm”.
If the government had given up in 2012 and 2013, as noted byInstitute of Public Policies (IPP), the 2025 budget planned to change it. This scale would therefore be frozen, but temporarily. “This measure would be theoretical at the moment T until a budget is adopted”specifies constitutionalist Thibaud Mulier. “The special law is explicitly made to pass January, not to be the 2025 budget”reassures the rebellious deputy Eric Coquerel, president of the finance committee of the National Assembly, in Les Echos.
“A new text will be developed and examined at the start of the year. And the income tax scale can easily be modified.”
Eric Coquerel, chairman of the Assembly's finance committeein “Les Echos”
For Victor Fouquet, doctor of law and public finance specialist, the government's declarations are part of a strategy aimed at “to scare” to taxpayers. The absence of indexation of the income tax scale “remains recoverable during the year 2025, and this retroactively”he remarks, evoking a totally legal retroactivity from the point of view “constitutional in tax matters”. “Ideally, this should be done before next spring and the tax filing date [pour 2024]. And at worst, the administration will always be able to reimburse taxpayers via a tax credit.concludes the public finance specialist. Despite everything, the coming months promise to be lively with the absence of a political majority in the Assembly.
