The income tax scale indexed to inflation: what it changes for you

The income tax scale indexed to inflation what it changes

It is a classic gesture, but particularly costly for the State in times of high inflation: the government confirmed this Tuesday, September 12 that the income tax scale would be increased by 4.8%, a measure which will avoid more than 300,000 employees to fall within the scope of this tax. “I confirm to you that we will index the income tax scale to inflation, that is to say 4.8%,” said the Minister of the Economy and Finance Bruno Le Maire on the LCI channel. It is “a concrete measure to protect the French against inflation,” Renaissance MP Charles Sitzenstuhl, former advisor to the minister, welcomed on Twitter (renamed X).

But unlike the capping of fuel prices or the anti-inflation measures of distributors on food products, it has a cost for the State, far from negligible at a time when the government is hunting for savings. The indexation represents “almost 6 billion euros of shortfall for the state budget”, calculated Bruno Le Maire. “It is a very important effort but an effort which goes to work, to all those who get up in the morning, work and allow us to have these economic results”, insisted the minister, who must present the draft of budget for 2024.

Faced with inflation, which is expected to reach 4.9% in 2023 according to government forecasts, some companies have agreed to salary increases: according to a recent study by the Deloitte firm, in 2023 they reached no less than 4.6% for workers and employees and 4% for executives. But while French people who earn less than 10,777 euros per year are not subject to income tax, these salary increases risked bringing some of them into the scope of the tax, or even increase the tax rate for those who were already subject to it. By raising the tax entry threshold by 4.8%, the government is avoiding “seeing 320,000 employees fall into income tax”, according to Bruno Le Maire.

If the government gives a political spin to indexation, presenting it as a gesture of support for purchasing power, it is a measure taken almost systematically in recent years. Since 1969, the scale has been updated each year to take into account inflation, except in 2012 and 2013, specifies Bercy. According to the brackets currently in force, the income of French people can be taxed at 0% (if they are less than 10,777 euros per year), 11% (between 10,778 and 27,478 euros of annual income), 30% (between 27 479 and 78,570 euros), 41% (between 78,571 and 168,994 euros) or 45% (above 168,994 euros).

“Excess profits” from highways

Households will not be the only ones to benefit from tax measures. Failing to completely eliminate in 2024 the second half of the CVAE, a production tax weighing on businesses, Bruno Le Maire confirmed on Tuesday that one billion (of the remaining four) would be eliminated next year. He also announced the elimination of the minimum contribution of 63 euros to the CVAE which weighs on some 300,000 companies, mainly VSEs and SMEs. Bruno Le Maire also insisted on the fact that “not one euro” from the gradual elimination of the tax loophole on GNR (non-road diesel) used by farmers and public works industrialists “would go to the State “.

These sums will be reinvested in supporting “ecological transformation” for agriculture and the purchase of electric machinery, particularly for construction. He also announced an agreement with these two sectors to “together finance a biofuel sector”. The tax advantage will be reduced gradually, underlined Bruno Le Maire, by 2.8 cents per liter each year from 2024 to 2030. “Despite the signs sent on Tuesday to businesses and households, certain players will not escape tax increases in 2024. Bruno Le Maire thus confirmed on LCI, without going into details, that the finance bill would include a “taxation of excess profits” made by motorway concession companies such as Vinci or Eiffage.