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How the French government's new budget will affect your wallet

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How the French government's new budget will affect your wallet
Photo: AFP
15:51 CEST+02:00
Emmanuel Macron's French government announced its budget for 2018 on Wednesday and as always there were winners and losers. See how you are affected.

THE WINNERS?

1. 80 percent of French households

The government's plan to phase out the residence tax called the taxe d'habitation will see many households in France better off in 2018.

Next year some 80 percent of France's 17 million households will see the tax, which roughly depends on the size of the house or flat you live in and where you live, reduced by 30 percent.

Those that benefit from the saving will be single-households where the individual earns less than €27,000 a year, couples who earn less than €43,000 a year and a couple with children earning less than €49,000 a year.

The tax will be phased out completely for many lower income earners over the coming years.

2. Private sector workers

Anyone working in the private sector should see their salary rise next year thanks to the government deleting two separate levies or social charges from their pay.

Contributions (cotisations) for illness (0.75%) and unemployment (2.4%) that are deducted from worker's pay each month will no longer be taken. Although this won't happen right away. The slashing of the cotisations will be done in two stages, firstly in January and then in October next year.

Essentially the bigger the salary the bigger the saving due to the fact the contributions increase with wages.

Those earning the minimum salary in France (SMIC) which is around €1,480 a month should see a saving of around €132 a year in 2018 and by 2019 that saving will have increased to €263.

For those earning €3,000 a month the saving is estimated to be around €530 a year by 2019.

3. The very wealthy

The French government has announced changes to the fortune tax (ISF) that will see the 342,000 wealthiest households in France better off.

The fortune tax was previously levied on all wealth - financial and property, but will now only be paid relating to property worth more than €1.3 million. That essentially means many households will no longer be subject to the fortune tax. 

The government's thinking behind the cut is to free up money that it hopes the wealthy will reinvest in the economy and help cut unemployment.

And in another gift to the most weathy, gains on financial investments will be taxed at a flat rate of 30 percent rather than under a progressive regime.

For example those with life assurance policies will benefit from the flat tax on interest, which will now only be deducted on policies worth over €150,000.

THE LOSERS?

1. Public sector workers

While President Emmanuel Macron promised during his election campaign to boost the spending power of all workers in France, those in the public sector will not benefit from the cut in illness and unemployment contributions.

They will also lose out due to the fact the government will increase the CSG - a levy deducted from salaries that goes towards paying for France's social security system, by 1.7 percentage points.

While private sector workers will also see the CSG "social charge" increase on their payslip, it should be outweighed by the gain they receive in the cutting of the other contributions (for illness and unemployment).

The rise in the CSG will come into place in January 2018.

Public sector workers have also had their pay frozen for 2018. The government has promised fonctionnaires compensation but has not yet decided what that will be. Discussions are ongoing.

A nationwide strike of public sector workers is expected on October 10th.

2. The retired 

The retired, especially the better off among France's elderly population, appear to be the big losers in Macron's first budget. 

While many will benefit from the cut in the taxe d'habitaton, some 60 percent will lose out due to the 1.7 percentage point hike in the CSG social charge that will be taken from their pensions. Only those with an income of less than €1,289 a month will be exempt. All the others will be paying around €25 more a month.

Pensioners of course won't benefit from the fact illness and unemployment contributions will no longer be deducted from private sector salaries.

3. Owners of diesel cars

The government has declared war on polluting cars which essentially means anyone who owns a diesel car. The tax on the cost of diesel fuel will rise by 2.6 percent per year over the next four years.

However the government will make €1,000 available to those who want to convert their old cars from diesel to petrol or even electric motors.

 

 

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