June 18, 2015
The French have an intimate relationship with their tax authorities, one which is about to change. Historically, the French have paid their income taxes the year after the income is paid. Each taxpaying French citizen is charged with filling out a form each year, one most French do themselves. On the form the taxpayer declares his income for the previous year and the tax due.
What this means is that the French have the use of more of their pre-tax dollars for longer than Americans, who are governed by a regime called "withholding at the source". The mechanics of withholding at the source mean that the employee, upon hire, declares himself and the number of his dependents for purposes of having the employer calculate how much tax will be withheld from the employee's salary and paid to the government with each paycheck. When the taxpayer fills out his tax return for the previous year, the amount withheld is a credit towards any tax due, if not the basis for a refund in the case of overpayment.
Witholding at the source is common in many countries, but France has been slow to adopt it. The proposal is part of La Loi Macron, a package of about 100 reforms to make France more competitive in international markets. Macron is Emmanuel Macron, the 37-year old former Rothschild banker who is the Socialist government's Finance Minister. Despite the controversy over the reforms, Macron enjoys popular support, has not been demonized in the press, and Manuel Valls, the popular Prime Minister, has his back.
Notwithstanding, the French are nervously asking questions about how withholding at the source would work in practice:
"When the law goes into effect do I have to tell my employer about my family life?"
"If the law goes into effect in 2016, does that mean 2017 will be a tax-free year, as in 2016 tax payers will both pay 2015 and 2016 taxes?"
Withholding at the source pre-empts taxpayers' best efforts to play cat-and-mouse with tax authorities by putting tax moneys into tax authorities' hands immediately and placing the onus on the taxpayer to claw back any claimed excess withholding.
So when Francois Hollande, seeking to minimize impact of the change, justified it as normal in most parts of the developed world, he was eliding the psychological sea-change the new regime will bring about. The French "Fisc", as it is known, is very well-established and knows its business, but it has not had the cooperation of employers, who will now be brought into the tax collection system. That is bound to make waves.
La Loi Macron contains a variety of other proposals, which have stirred up controversy, including:
-Introducing more competition in legal services for jobs such as bailiffs and court clerks;
-Opening up inter-city bus routes to allow them to compete with trains;
-Setting rules for the sale of state assets, which might lead to the sale of airports in Nice and Lyon;
-Regulating how long taxis can wait for customers outside buildings and airports;
-Removing the requirement that farmers employ architects when making minor changes to their land;
And, most controversially,
-Extending the number of Sundays stores could be open from 5 to 12. But only after internal agreement to do so, and with approval of the "Workers' Council".
La Loi Macron is not a wholesale reform, which would never pass in France. Even though the changes it seeks are incremental, in the course of moving the reforms forward, the government has twice had recourse to a section of the French constitution, Section 49-3, which allows the Prime Minister to declare the law adopted, thereby bypassing the Assemblee Nationale and sending the legislation directly to the French Senate for a vote.
That maneuver can be overturned by a vote of "no confidence" (motion de censure), which requires the vote of a majority of the deputes and implies the collapse of the government. That motion has been made by opponents of La Loi Macron, those being the most leftist of the deputes in the Assemblee Nationale, but they are unlikely to prevail.
Notwithstanding the significance of the reforms being brought into being by the new law, France is adapting slowly to global realities. The Labor Code (Code de Travail) is as impenetrable as the U.S. Internal Revenue Code, and remains a bulwark of labor, and a guarantee of employment for those lucky enough to have a permanent job --a Contrat de Duree Illimite, or "C.D.I.", as it is known.
No reform of the Code de Travail is expected anytime soon.
***
France's unemployment rate tipped the 10% mark a few weeks ago, a fact of which everyone is aware. Notwithstanding, Segolene Royal, the Ecology Minister (and former partner of President Francois Hollande), made news by criticizing a product beloved of French children, and made in France, "Nutella".
The Nutella "smear", if you will, was set off by offhand remarks Royal made on television a few days ago. She said Nutella is unhealthy because it is made with palm oil, and that its production is harmful to the environment. While these are both probably true, 13% of all products on French supermarket shelves are made with palm oil. For decades, Nutella has been s a treat for French children, spread on a freshly-made crepe, made at home or sold alongside ice cream in sweet shops.
Segolene Royal is the "Energizer Bunny" of French politics. Throughout her career she has been an indefatigable self-promoter. Upon giving birth to one of her children with Francois Hollande, she invited cameras into the hospital room immediately after the birth; and, as chief executive of the Poitou-Charentes region, she spent much of her time unsucessfully promoting the development of an electric car to be made there. Royal was the presidential candidate in 2007, elbowing out Dominique Strauss-Kahn, to the horror of the more conservative members of her own party, whom she called "dinosaurs". Now that Valerie Trierweiler (the woman Hollande left Royal for) is out of the picture, Royal has come to function more and more as Hollande's unofficial "First Lady", along with holding her ministerial brief.
"Hollande and Royal are the Hillary and Bill Clinton of French politics", a French friend told me. "After all is said and done, now they will stick together to the very end."
The Nutella "smear" caused some French workers at the factory in France where the product is made to tell news cameras "France's unemployment rate isn't high enough, she thinks we ought to close another factory, right?" In Italy, the wife of the Prime Minister Matteo Renzi took her daughter to a sweet shop to have --what else?-- a crepe with Nutella.
Update: I stand corrected about Segolene Royal's "First Lady" status. Julie Gayet, the actress to whose Paris apartment President Holland was caught speeding on his motorcycle last year, was at his side for a commemoration of a World War II anniversary today. This is Gayet's first official public appearance as President Hollande's partner.
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