France opts to automatically deduct income tax from paychecks
PARIS — After days of speculation, President Emmanuel Macron has made his decision: Automatic income tax deduction, or what the French call prélèvement à la source, will be implemented from January 1, 2019.
The policy change, announced Tuesday night by Prime Minister Édouard Philippe on TV, means French workers will see their annual income tax automatically deducted from their monthly paychecks, rather than having to fork over the amount in one or three installments the next year.
The decision apparently settles a policy change which has undergone multiple delays and the necessity of which has been questioned. Macrons predecessor François Hollande backed the measure as early as 2015, planning to begin implementation in 2016 with full rollout for 2018. But early on in his tenure, Macron had doubts about the measure and last September pushed back the reforms implementation until 2019.
In recent days, suspense grew that the tax measure could be abandoned. French daily Le Parisien published confidential information from the programs test runs showing “calamitous” tax-collection mistakes. That led Budget Minister Gérald Darmanin to offer a forceful Twitter rebuke, writing: “The errors identified concern less than 1 percent of taxpayers, they have since been resolved. The technical mechanism functions, it is ready!”
Still, rumors circulated that the prospect of a “psychological effect,” in which consumers spend less due to seemingly smaller monthly intakes, could be behind Macrons hesitation.
During the transition year, the cost of installing the procedure for some 38 million French households could reportedly be upwards of €300 million. And while automatic deductions may improve revenue collection, the economic effects on consumers and businesses remain to be seen.
A negative result which pushes down Frances economic growth rate could again send the countrys budget deficit, currently around 2.6 percent, past EU guidelines of 3 percent.