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Filling the €9bn local tax hole

How the French government could cover the cost of abolishing taxe d'habitation for 80% of the population by 2020

The government is looking at ways to fill a €9billion hole in its finances when the taxe d'habitation is finally abolished for 80% of the population by 2020.

Scrapping the tax for most households was a key election pledge of President Emmanuel Macron - and one he repeated in a recent interview on BFMTV when he said: "We must overhaul local taxation."

The tax has been a key fundraising mechanism for regional and local government and national government will compensate local authorities - but Mr Macron also pledged that there would be no new taxes.

If that is the case, how can the government recover the loss in finances?

Maintain the ‘surtaxe on second homes
This is arguably the most likely option. Some cash-hungry mairies have already increased the ‘surtaxe d’habitation’ on second homes to offset the looming loss of the taxe d’habitation, which the government will phase out for 80% of homes by 2020.

This year Nice has already raised its surtaxe to 60% while Bordeaux intended to raise its to 50% and Saint-Jean-de-Luz set its at 40%. Paris led the way when it set its extra tax at 60% to fight holiday-flat owners using Airbnb and it has now called for the surtaxe to be transformed into a perpetual tax, set at its own rate.

Paris and Bordeaux want to keep it on second homes after 2020 as the taxe d’habitation is a major part of their revenue and they fear that substitute government funds will be phased out.

Nationally, it is expected that this would raise between €2billion and €3billion a year, short of the €9billion needed to offset to cut in taxe d’habitation.

Redistribute national taxes
Mr Macron referred to the possibility of redistributing some nationally collected taxes among the municipalities, departments and regions. With improved consumer spending, for example, national coffers are swelled by an increase in VAT - which could, it has been suggested, be handed out to local authorities to cover any future taxe d’habitation shortfall.

In case of a fall in consumer spending reducing VAT income, it has been suggested that the cotisation sociale généralisée (CSG), income tax or fuel taxes could rise could rise.

An property tax based on income
The least likely, given Mr Macron's pledge not to impose new taxes - but one that was put forward to widespread uproar earlier this year by Public Accounts Minister Gérald Darmanin - is an income-based property tax.

Prime Minister Edouard Philippe has already said that this option is 'not on the table'.

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