The introduction of the “flat tax” and the overpressure of the ISF, emblematic measures of Emmanuel Macron’s five-year term, have not yet had positive effects on the economy, according to a report by an evaluation committee under the aegis of France Stratégie.
The abolition of the ISF and the establishment of flat tax on capital income have not yet resulted in measurable positive effects on the economy, according to a report published on October 14, which therefore does not at this stage evoke the reality of a “runoff” defended by Emmanuel Macron in 2017.
According to this idea, and this was the objective of the capital tax reform introduced in 2018, to replace the wealth tax (ISF) by a tax on real estate only (IFI) while creating a flat-rate levy unique on capital income (PFU or flat tax), would reduce the tax paid by the wealthiest taxpayers in order to encourage them to invest in the economy.
For the time being, the evaluation committee set up to study the effects of this reform under the aegis of France Strategy, a body responsible for advising the government, has not concluded in this direction.
Even if he warns that his results are only partial, “at this stage no effect has been identified on the investment, neither after 2013 (reform of the taxation of dividends), nor after the reform of 2018”, a indicated Cédric Audenis, deputy commissioner general at France Stratégie, during a presentation of the report to the press.
The committee recognizes that household financial investment flows have increased sharply, as has corporate equity financing flows.
There is still a lack of temporal hindsight to assess this type of effect
But “the observation of the major economic variables – growth, investment, flows of household financial investments, etc. – before and after the reforms is not enough to conclude on the real effect of these reforms ”, he indicates in his opinion.
Bercy defends the measure
“There is still a lack of temporal hindsight to assess this type of effect”, which “take time to materialize”, in the economy, we qualify at Bercy, recalling that the report is based on data from 2018 and 2019 only.
The ministry further points out that due to the lack of data available at this stage, the committee focused on companies whose shareholders have benefited from the flat taxor “a single specific channel” of the potential impact of the reform on investment. One of the avenues that the committee now wants to explore is the use of additional dividends paid since the reform by those who have benefited from it.
“What did these households do with this money?” Have they reinvested in companies in the French productive fabric? ” or elsewhere, asks Cédric Audenis.
Because it is one of the tangible effects of the reform: the return of dividends paid by companies (+9 billion euros approximately) to the level which was theirs before the reform of 2013 and their inclusion in the calculation of the ‘income tax. These payments had plunged between 2013 and 2017.
This increase in dividends has also proven to be very favorable to public finances, since it has reduced the cost of the reform to around 1.5 billion euros, against 5 billion anticipated.
The report also confirms that the departures abroad of wealthy taxpayers have decreased and that returns have increased even if this concerns “small numbers”, a few hundred households, out of 130,000 subject to the IFI.
The abolition of the ISF has not changed the dividend policy of companies
This report, the third since 2018, also twists the neck to some criticisms leveled against the ISF, while some on the left are still calling for its recovery.
According to his detractors, he pushed business leaders, especially mid-sized companies (ETI), to pay themselves more dividends to pay their ISF. False, the report notes. The reform did not change the dividend policies of these companies.
Similarly, the ISF was accused of freezing corporate governance, including transmissions. But “no effect of the abolition of the ISF seems to be detectable on the management of companies (…), or on the circulation of capital”, underlines the committee in its opinion.
“The first elements brought today go in the direction that it deserved a little less criticism (…) but we must remain cautious”, estimates Fabrice Lenglart, president of the committee, recalling that the ISF did not fulfill perfectly its objectives, in particular on the level of tax paid by the richest households.