March 8, 2019
Guest blog post by Till Fischer, a student of law at Friedrich-Alexander-University Erlangen-Nuremberg (Germany), specialized in antitrust law and legal assistant within an international network of accountancy firms.
France finds itself thrown into turmoil, indicating that Macrons policy has reached an impasse. The president of the rich must perform a U-turn over his way of dealing with tax evasion, tax hikes and the claim for a direct democracy.
The gilets jaunes movement recently came up with a list of “improvements” to Macrons policy whose implementation they claim . While taxing the rich to finance the country’s social system sounds reasonable at first sight, from an economic perspective it could have precisely the opposite effect:
1. More progressive income tax
Demanding more marginal tax rates, the French government must start with a rise in the tax-free personal allowance. For the year 2018, tax-free personal allowance in France was €9,964. Considering the average annual rent for a 35 m2 flat in Paris amounts to €6,840  , it is obvious that life with €260 per month for living seems rather charmless, especially since living costs in France are amongst the highest within the EU, even higher than in Luxemburg and Germany . Compared to other European countries, France and Germany come in last behind the UK, Austria and Spain with personal tax-free allowances, those in the lead attaining up to €12,450. Furthermore, the French government planned to raise taxes on fuel while cutting subventions on plug-in-hybrid cars . It is obvious that the current direction of Macron’s policy indicates the wrong signals for low-wage-earners, leaving them no other choice than to protest against rising charges.
2. Restoration of the ISF
The gilets jaunes are demanding the reintroduction of the solidarity tax on wealth which was replaced by the tax on real estates (IFI) in 2017 and which applied to taxpayers with assets over €1.3m. In 2016 alone, 12,000 millionaires left France , fleeing from the taxation of assets, with famous examples like Gérard Depardieu, Patrick Drahi or Alain and Gérard Wertheimer. Since tax evasion will be an option for wealthy people as long as there are tax havens, maximum tax rates must remain below the critical 50 percent limit. Beside condemning tax evasion by leading politicians  there is no alternative to stop the outflux than to provide tax incentives to make France attractive not only for investors and companies, but also for residents.
3. Higher corporate tax on international companies
Much like wealthy individuals have done, a rising number of French companies are ‘offshoring’ their production due to the fact that France demands one of the highest corporate taxes within the EU. Knowing that competition with these kinds of companies is rather difficult for micro-companies, having multinational companies in a country is without alternative, since they provide infrastructure and employment. Instead of demanding a higher taxation on corporations and thereby effectively expelling more and more companies from France, fiscal incentives must be provided to induce French companies move their production back to the EU, where the outcome can be taxed. The competitiveness of micro-companies should rather be granted by means of national antitrust regulations.
The passage of the 2018 budget law which allows for a reduction of the corporate tax to 25 percent until 2022 , indicates that the French government already made an about-turn in its policy towards the right direction.
4. Introduction of a popular referendum
Popular referendums already exist in Switzerland and some federal states in Germany. What unifies them is their population around the 10m mark. Gilets jaunes are claiming a demand for 700,000 signatures – equivalent to 1.04 percent of France’s population – for a proposition to be submitted for a national vote. As a comparison, Switzerland requires 8.25 percent, the state of Bavaria 10 percent of its population to sign the submission. The alarmingly low requirements for a popular referendum as requested by the gilets jaunes, entail high risks: in times where parties like Germany’s AFD or France’s Front National have been able to attract large numbers of voters within few months, the risk of the ordinary legislation introduced by parliament being subverted by radical movements, is high.
Furthermore, costs and efforts for several annual elections amongst the whole population within a country as big as France are immense. Hence, if a popular referendum is introduced, its requirements must be adapted to the European standard, making a successful referendum an exception within the ordinary legislation.
The French government must come up with a reasonable plan to solve the current grievances within the first few months of 2019, before the gilets jaunes movement develops into a second radical party. One can only hope that Macron will renounce his current policy and strive to focus not only on one social class but also to consider the people and the companies which France is known for around the world.
For further information:
 List accessible on: https://www.cnews.fr/france/
 Living costs within European states: https://www.expatistan.com/
 Subvention cutoff on hybrid cars (German): https://www.electrive.net/
 Tax evasion in France: https://www.dailymail.co.uk/
 Official criticism of tax evasion by French government officials (German): https://www.faz.net/aktuell/
 Basics of the French tax system (German): https://www.berton-associes.