With France’s public debt set to reach the record high of 95.1 percent of GDP, perhaps it’s not surprising that this year’s budget, agreed on by the cabinet on Wednesday, will seek a whopping €15 billion in income and savings.
Some €3 billion of that is likely to involve households and businesses, and here is our guide to how Budget 2014 will affect you.
The government is to lower the ceiling of family income tax break ceiling, known as le quotient familial, from €2,000 to €1,500. This measure is designed to target the most wealthy. A couple with one child will be affected from household incomes starting at €58,000 net a year.
For a couple with two children, the threshold will rise to €64,000, and €72,000 for those with three children.
As predicted, income tax will be indexed to inflation once again, meaning that many less well-off households, whose income became taxable last year, will go back to paying no income tax in 2014.
Tax relief ("La décote")
"La décote" is a tax discount currently reserved for households who don't pay more than €960 in income tax per year. As of 2014, that discount will be increased from €480 to €508.
This change is good news for poorer households, and will affect 6.9 million tax-payers next year.
Tax relief for children in education
2014 will see an end to tax reductions for families with children enrolled in education, which should save the state 61, 153 and 183 euros for every university-level, secondary school, and post-graduate student in the country, respectively.
Retired people who have fewer than three children will, for the first time, have to pay taxes on their allowance, with 10 percent set to be taxable in 2014.
A car with 2014 license plates will land its owner with €150 in extra taxes, if its CO2 emissions are between 130 and 135 grammes per kilometre.
If the emissions exceed 200 g per km, the vehicle’s owner will be hit with €8,000 in taxes.
VAT (sales tax) on cinema tickets will drop from 5.5 percent to five percent, but the intermediary level of VAT (restaurants, hotels, and so on) will increase from seven to 10 percent, and the “normal” rate from 19.6 to 20 percent.
Owners will not have to pay capital gains tax on their second homes if they have owned the property for at least 22 years. Current the limit for exoneration from the tax is set at 30 years.
Homeowners will be encouraged to make energy saving renovations to their homes with the government reducing the rate of VAT on the cost of works from 5.5 percent to 5 percent. The rate will stand the same for the construction and renovation of social housing.
Tax on fossil fuels
The price of a kilowatt-hour of gas will rise by 0.13 cents from 2014.
However, controversially, there will be no rise in tax on diesel next year, but it will increase by two cents per litre in 2015.
Businesses will have to pay 75 percent tax on wages exceeding €1 million. The tax, one of Hollande’s flagship election promises, is set to earn €260 million in 2014 and €160 million in 2015.
Businesses with a turnover in excess of €50 million will also have to pay a tax on the gross operating profit (EBE). The government hopes the tax will pull in €2.48 billion in revenue for state coffers. This has been brought instead of the fixed annual tax ("imposition forfaitaire annuelle").
The government has also confirmed the establishment of a Savings Action Plan (Plan d’Epargne action EAP) which is aimed at helping finance small to medium sized enterprises. A ceiling of 75, 000 has been placed on the scheme.