Millions in France at risk of paying more tax due to budget chaos

Up to 18 million people in France are at risk of having to pay more tax in 2025 after the fall of the government last night (December 4) following a vote of no confidence against Prime Minister Michel Barnier.

Read more: French Prime Minister Michel Barnier to resign today after no-confidence vote passes

If a new budget is not passed before December 31 – which looks increasingly likely with France’s political instability – the measures in last year’s budget covering the 2024 year may also come into force again in 2025 to ensure the state can still collect taxes and pay expenses.

Mr Barnier said, before the no-confidence vote, that toppling his government will cause “close to 18 million people in France to see their taxes rise, others to pay them for the first time.” His estimation is supported by the economic think-tank the Observatoire français des conjonctures économiques (OFCE) .

Legislation allows the government to present emergency measures authorising it to continue to levy existing taxes.

Other security measures in place mean benefits and pensions will continue to be paid even if the budget is not updated before the start of next year.

The lack of a new budget would mean all of the tax measures attached to the 2025 budget proposals, including increases on tobacco products and plane tickets, would not come into effect.

This also means that retirees may also come out better than under the planned 2025 budget as plans to delay the indexing of pensions to inflation to July 2025 - as opposed to January - will not be enacted.

Why could income tax rise for so many households?

The lack of a new budget (with the 2024 budget measures continuing) means proposals to adjust the income tax bands so they are indexed to 2% inflation will not be put into force. Income tax in 2025 (for 2024 income) will instead be levied at the 2024 rates to the same bands as in 2024 (for 2023 income).

If tax brackets remain unchanged, an estimated 17.6 million households will see their income tax rise, states the OFCE.

In October the think-tank estimated that freezing the income tax bands would cause households “close to the median standard of living…to lose between €50 and €100 a year.” 

The wealthiest 15% of households would see a loss of €250, it said, and therefore be “relatively less affected than others”.

In addition almost 380,000 extra households that would have otherwise have been exempt from income tax under the 2025 budget will become liable.

The brackets, and difference between 2024 and those proposed in the budget for 2025 are:

• 0% bracket, 2024: €0 - €11,294. 2025: €0 - €11,520 

• 11% bracket, 2024: €11,294 - €28,797. 2025: €11,520 - €29,373 

• 30% bracket, 2024: €28,797 - €82,341. 2025: €29,373 - €83,988

• 41% bracket, 2024: €82,341 - €177,106. 2025: €83,988 - €180,648

• 45% bracket, 2024: From €177,106. 2025: From €180,648 

‘Possible to protect middle- and working-class taxpayers’

The far-right Rassemblement National (RN) has so far defended its stance against the proposed budget despite criticisms that voting to topple Mr Barnier’s government would lead to tax increases for workers.

RN MP Jean-Philippe Tanguy said it would be possible to table a separate new amendment when the Assemblée nationale votes on the emergency measures mentioned above which would index the tax bands to inflation despite retaining 2024’s tax levels.

He said a similar situation had occurred in France in 1979. 

“It is possible to protect all middle-class and working-class taxpayers from an unfair increase in income tax,” he said to Europe 1 (quoted in French media Public Sénat).

This would have to be voted through the Assemblée, however.

Is there good news? 

Unless the budget is somehow passed, all proposals attached to it will be shelved. 

This includes the various proposals already adopted by the Assemblée nationale and Senate, including tax levels for goods and services. 

This includes controversial proposals such as the increase in solidarity tax on plane tickets, approved by the Senate last week as well as increases to notaire fees and changes to capital gains taxes.

However, it is likely some of these changes would not have been included in the final budget proposal presented to MPs if the government had not fallen and would not have been passed regardless.

Shelving of the budget also puts an end to rule changes such as to sick-leave payout for civil servants. 

Unions maintained strike action in opposition to the budget proposals today despite the fall of the Barnier government. 

Read more: Airlines told to cancel some flights to and from France due to Thursday’s public servant strikes

Controversial pension changes and extra tax of wealthy nullified

The controversial delay of pension indexing to July 2025 due to high inflation levels – one of the far-right’s ‘red lines’ when removing support for the previous government – will not take place. 

“Article L161-25 of the Social Security Code stipulates that retirement pensions will be adjusted on 1 January in line with the inflation index” if there are no alterations to this in the budget, said economist François Ecalle to Capital. 

It means pensions will be adjusted by 2.2% from January 1, 2025. This will see around 15 million pensioners receive an extra €15 each month for the first six months of the year, costing the government around €3.6 billion.

The very wealthy are also likely to benefit, as planned tax increases on households with taxable income of more than €500,000 (€250,000 for single, widowed, separated or divorced people) will no longer come into force, nor will additional taxes on large company profits.

This is subject to no new budget containing some of these changes being brought forward.