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BUDGET

France hikes taxes on big companies to meet deficit goal

France said Thursday it would temporarily raise taxes on the profits of big companies in order to meet its deficit target after being hit with a hefty bill for an unlawful levy on dividends.

Published: 2 November 2017 16:16 CET
France hikes taxes on big companies to meet deficit goal
President Emmanuel Macron's centrist government has pledged to bring the deficit within the EU limit of 3.0 percent of GDP for the first time in a decade this year.
   
That goal, however, appeared to be in jeopardy after the state was ordered to pay back 10 billion euros ($11.6 billion) in taxes on dividend payments imposed by Macron's Socialist predecessor Francois Hollande.
   
Ruling that the tax was unfair, the French Constitutional Council ordered last month that companies be reimbursed, creating a massive hole in Macron's first budget.
   
The new cost represents two-thirds of the 15 billion euros the government said it would find in new savings next year, and far exceeds the seven billion it has promised in tax cuts.
   
The government announced a workaround on Thursday, when spokesman Christophe Castaner said the shortfall would be made up through a one-off increase in taxes on the profits of France's 320 biggest companies.
   
From 33.3 percent currently, the corporate tax rate will rise to 38.3 percent for companies with turnover in excess of 1 billion euros in 2017 and to 43.3 percent for those with revenues in excess of 3.0 billion euros, he announced.
 
The move is expected to add 5.0 billion euros to state coffers, which, when coupled with additional spending cuts, will allow France to maintain its goal of a 2.9 percent deficit, the government said.
   
Castaner said the tax hike, which will be included in a revised budget, will “share the effort (of repaying the dividends tax) 50-50 between the state and companies.”
   
The announcement came as a group of companies in western France unveiled plans to sue the state over the dividends tax.
   
Macron had been accused of being soft on the rich and big business in the first version of his budget.
   
The left-wing opposition labelled him the “president of the rich” for slashing a wealth tax while at the same time trimming housing benefits for students.
   
Macron argues that cutting taxes on capital is necessary to spur investment and job creation.
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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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