Macron government on tenterhooks as new tax regime takes effect

PARIS, France – The French government sought on Wednesday, January 2, to downplay fears that workers will be left out of pocket as the country transitions to a pay-as-you-earn tax system that could fan the flames of a revolt over spending power.

After years of delays, France on January 1 ditched a system whereby residents file income tax returns based on the previous year’s earnings, replacing it with a system where the state deducts the taxes directly from people’s salaries or pensions each month.

Opinion polls show the French broadly supporting the change but the shift presents risks for President Emmanuel Macron, not least that workers may feel poorer when they receive their new net pay – even if they will no longer have to save up to pay their taxes 3 times a year.

Any glitches in the new system which could see taxpayers pay more than they bargained for could further infuriate the “yellow vest” anti-government protesters who have been demonstrating around the country since mid-November over Macron’s fiscal policies, which they see as skewed towards the rich.

Visiting a tax query call centre in the northern city of Amiens, Budget Minister Gerald Darmanin attempted to assure the French that the change would be painless.

“Taxation at source is like the mobile phone. In a month’s time we’ll be wondering how we ever managed without it,” he said, calling it a “big step forward for the French”.

He attempted to silence the doomsayers, noting that so far there was no sign of the much-prophesied chaos and that the number of queries received by the call centre were on a par with an average month.

93 million letters

The shift to a pay-as-you-earn system was adopted by the Socialist government of Macron’s predecessor Francois Hollande, but is only now being implemented, after some dithering by Macron on the issue.

To prepare the French for the change the government has sent 93 million letters and emails explaining the new system. (READ: French workers win ‘right to disconnect’ after work hours)

The move, which will only affect the 43% of households liable for income tax, brings France in line with most Western countries but comes at a critical juncture for the Macron.

Over the past 6 weeks, “yellow vest” demonstrators – so-called after the high-visibility jackets they wear – have repeatedly clashed with police in Paris and other big cities, plunging Macron’s presidency into crisis.

The “yellow vest” movement  began in rural France over fuel taxes and quickly ballooned into a wider revolt against the 41-year-old president’s pro-business policies and perceived arrogance by low-paid workers and pensioners.

In mid-December, he attempted to calm the rebellion by backtracking on a planned increase in anti-pollution fuel taxes.

He also announced 10 billion euros ($11.4 billion) in tax breaks and income support for the low-paid and retirees, setting back his deficit-reduction drive in the process.

Since then the protests have appeared to lose steam.

In his New Year’s address to the nation on Monday, Macron vowed to resume his reforms programme in 2019, including trimming the sprawling public sector and shaking up the unemployment and pension systems, all potential political minefields.– Rappler.com