The 2012/01/31 at 06:30
A necessity for strengthening the European Union. This is how the plan to bring French and German taxation in line was described by Nicolas Sarkozy just three months ago. Today, the French President’s announcement regarding the introduction of a social VAT seems to indicate that priorities have changed.
In 2007, Angela Merkel’s government raised its VAT rate from 16 % to 19 %, thus bringing it close to the current French rate (19.6 %). “Even if Germany’s motivations were driven by other factors, this comes down to a significant rapprochement with the system in place in France,” specifies Gérard Orsini, President of the Legal and Tax Committee of the CGPME (General Confederation of Small and Medium-sized Businesses). Decided on in November 2011, France’s alignment of its reduced VAT rate with German regulations (7 %) was seen as a new symbol of this rapprochement. “This was a response, a strong message regarding this desired harmonisation,” believes Gérard Orsini. But now the French government plans to bring up the general level of the VAT, already 0.6 point higher than the German rate, by a further 1.6 %. “By seeking to finance a proportion of its social welfare with the VAT, France is imitating Germany, but in terms of the level of tax, an increase would once again widen the differences between the two countries,” he states.
The bill relating to indirect tax is not the only point where tax divergences are continuing to make their presence felt. Income tax does not bear the same weight in public accounts in the in the two countries. It represents 9.6 % of the GDP in Germany, compared with only 2.6 % of the GDP in France, as pointed out by the Cour des Comptes (State Audit Office) in a report published in March 2011. In addition, while tax on capital income is comparable in the two countries, representing around 25 billion euros per year, Germany stands out by a particularly weak wealth tax income. This only represents 0.85 % of the GDP compared with 3.41 % of the GDP in France. No proposal has been put forward in recent months about a possible alignment with the German scheme.
A rapprochement project would mean that the French would pay more income tax and more social contributions. Wealth, on the other hand, would be taxed four times less. These issues, open to debate, are perhaps judged by the government as untimely to raise just three months off from the presidential elections. As for businesses, the main difference concerns corporate tax that Germany cut by half a few years ago. It is now 15 %, compared with 33 % in France. Yet the cost of labour, contrary to what is generally believed, is relatively similar on both sides of the Rhine. When tax and social contributions are added to the employer’s global labour costs, the figure comes to around 50 % of the average salary in both cases.
Let’s also point out that not all German ideas are necessarily good models. France sets aside 52 % of tax income to social protection while Germany only puts 40 % towards this domain. Between 2000 and 2009, Germany’s poverty rate has increased by 50 %.