Most economists and politicians agree that abolishing the council tax was a mistake. To be precise, it was an economic mistake but not a political one. I see Emmanuel Macron’s advisors again, during the 2017 presidential campaign, explaining to me that we had to offer the French a popular, simple and identifiable measure. Nobody talked about its economic and financial consequences, it would have been almost incongruous. The current president then joined François Fillon in voting intentions. The abolition of the council tax was intended to “kill the match”, which was the case. This decision established the triumph of political tactics over the general interest.
The abolition of the housing tax was an economic error on two counts, and not the least. First of all, this tax constituted a significant income for our municipalities, the equivalent of approximately 15 billion euros per year. It was certainly compensated, in large part, by State grants, but we substituted a local resource with levy rates decided as close as possible to the field for state funding distributed according to distribution keys developed in Paris. In short, it is a recentralization operation where, on the contrary, our local authorities, which finance three quarters of public investment in France, need autonomy and responsibility. This measure illustrates a major flaw in our institutional system: the possibility for the State to take demagogic measures at the expense of local elected officials.
In France, the notion of public deficit does not exist…
The second error is obviously not having financed this tax cut by a strictly equivalent reduction in spending, another national failing. In France, it’s simple: the notion of public deficit does not exist… We can increase public spending without increasing taxes, or eliminate taxes without affecting public spending, reality does not matter. Unfortunately, it imposes itself on everyone, at one time or another. In fact, municipalities compensated for the shortfall by increasing property taxes. And the State financed what it compensated the municipalities with a deficit. And yes: removing a tax without reducing spending means increasing other taxes, today and tomorrow, knowing that local authorities do not have the right to vote for an operating budget in deficit .
Hence a recent proposal which emerged from pens as diverse as Eric Coquerel or Jean-François Copé: reinstate this famous housing tax. Intellectually, the debate is not illegitimate: the State made a mistake, why not reconsider it? Except that the time is not right: the government has reopened the Pandora’s box of taxes, and the National Assembly has become fiscally hysterical. What is true, on the other hand, is that we have before us a great and magnificent debate which could bring together Gaullists, liberals and social democrats: that of the territorial organization of our country and the financing of local authorities. .
For a “shared taxation” system
Our country is dying of centralization and it is logical that municipalities, departments and regions have a certain autonomy to finance themselves, it being up to citizens to sanction elected officials if necessary. A useful reform would consist of establishing a real system of “shared taxation”, as is the case, in particular, in the United States, Canada, Switzerland or, to a certain extent, in Austria.
In such a system, territories set a tax rate on personal income and business profits, as well as a VAT rate, which are added to national rates, within certain limits defined by law. The system is relatively simple and tax competition between territories regulates it. Thus, in the United States, Californians, crushed by taxes, move to Nevada or Texas. But such a colossal change cannot be improvised. It is a bold presidential project which is part of a transformation of the country and a long-term vision. A project that is being prepared. Alas, our political parties have become clubs of elected officials who no longer work.
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