To reduce the public deficit, the strategy of raising taxes has already been applied several times, without notable effect. It is necessary to move away from this ineffective approach and finally tackle the control of public spending, argues tax lawyer François Ouairy.

Pierre Moscovici recently stated that ‘the fiscal debate should not and cannot be taboo,’ while suggesting the possibility of a tax increase to control public debt. This statement is paradoxical, to say the least, in a country where the tax burden was the highest in the world in 2022.

With a tax burden reaching 48% of GDP in 2022, France is far ahead of the Eurozone average of 42.1%. For comparison, Germany, the largest economy in the European Union, had a rate of 42.1%. While there is a near consensus on the need to reduce public debt, is another increase in tax burdens, already at record levels, a viable solution in the medium term?

A Lever Already Used

In France, there have been numerous tax hikes in recent decades, without any significant impact on public deficits.

During the 1993-1997 legislature, France made deficit reduction a priority in order to bring it below 3%, the maximum threshold allowed to join the Eurozone. As a result, tax burdens increased by 2.3 points of GDP, with significant rises in VAT, corporate tax, and the CSG (social security contribution). The outcome of this policy was mixed, notably contributing to Jacques Chirac’s decision to dissolve the National Assembly over the issue of the deficit.

During François Hollande’s presidency from 2012 to 2017, tax burdens increased by 2.5 points of GDP. This period saw the introduction of an exceptional contribution on high incomes and an increase in the standard VAT rate. Yet again, the 3% deficit target was not met, as it still stood at 3.4% of GDP in 2017.

A ‘Fair’ Fiscal Debate

Pierre Moscovici calls for a ‘fair’ fiscal debate, sparing the working and middle classes, who already feel the weight of taxes as overwhelming. Nevertheless, targeting other taxpayers must be done carefully.

The example of corporate tax, where tax base elasticity is high, is particularly instructive. In the 2000s, France’s corporate tax rate exceeded 33%. This tax burden prompted many multinational companies to optimize their taxes by shifting profits to countries with more favorable tax regimes, such as Ireland, where the corporate tax rate is set at 12.5%. The result: a significant erosion of France’s taxable base, reducing both fiscal and social revenues.

To counter this, the corporate tax rate has been progressively reduced since 2018, reaching 25% in 2022. This reduction doubled corporate tax revenues over the same period, rising from €27.4 billion to €58.5 billion.

Controlling Expenditures

The real taboo that needs to be lifted is not the tax debate, but effective control of public spending. Since 1989, structural efforts to control public spending in France have been largely insufficient. The negative structural effort on public spending (-5.2 points of GDP between 1989 and 2023) shows that despite the increase in tax burdens (+1.1 points over the same period), it is the continuous rise in spending that has deepened the deficit.

Reports from the Court of Auditors and international organizations regularly highlight the inefficiency of public spending in France. Controlling public spending is thus imperative if we truly want to reduce the deficit. Reducing expenditures without deteriorating public services is a challenge, but it is a necessary step to restore the sustainability of public finances and avoid further increasing the fiscal burden on taxpayers.

François Ouairy is a tax lawyer at the Paris Bar.