Macron’s Victory Puts Corporate Tax Cuts on the Agenda

May 2017

After 66-34 victory in the French election, Emmanuel Macron faces the difficult task of fighting the legislative elections and building a government to deliver his reform agenda: cutting taxes and public spending. The outcome was a significant relief for European leaders in particular.

Macron’s victory forecloses the possibility of a referendum on France’s membership of the European Union (EU), and will likely lead to greater cooperation within the EU.

"I will defend Europe; it is our civilisation which is at stake," said Macron. "I will work to rebuild ties between Europe and its citizens."

During the campaign Macron made it clear he wants to lower France’s corporate tax rate from 33% to 25% as part of a bid to shrink the size of the state over the next five years. Macron plans to bring France in line with the EU’s 3% limit on budget deficits. He has pledged to cut the budget by €60 billion (US$65.4 billion) a year and reduce the civil service by 120,000. The plan is to cut these government jobs by not replacing those retiring.

By cutting the state, Macron hopes to end what he calls "fiscal instability" in France. He has also refused calls from the left to back down on the controversial El Khomri labour reform introduced under the Hollande government. The bill revised French labour laws to make the job market more flexible. Instead Macron argues that this step is necessary to reduce unemployment from 10% to 7%.

As part of this programme, Macron wants to do more with less and invest €50 billion (US$54.5 billion) in green energy over five years. He proposes a reduction in social security contributions for employers and do away with the local residence tax that 80% of French households pay. Macron also wants to reform the wealth tax to prioritise real estate over productive investments. In short, the centrist candidate wants to lower taxes on individuals and raise incentives for businesses.

As he founded En Marche! (On the Move!) last year, Macron is in the unusual position of not having any seats in the National Assembly. He has said he has a candidate in mind for Prime Minister, but has refused to name the person. This may be down to the fact that the June legislative elections may well determine the character of the government for at least the next two years. Though the new party is polling well, it will need to win 289 seats to claim a majority.

If Macron can’t establish a presence in the National Assembly, he will have to find allies from other parties to build a coalition. The Republicans have already hinted that they would be able to work with him. This is not unprecedented in French politics. Conservative President Jacques Chirac had to work with Socialist Prime Minister Lionel Jospin from 1997 to 2002.

In such a scenario, it’s possible that Macron’s agenda could be watered down and the tax proposals shelved. If the new president is to avoid any limits on his agenda, the new party will have to make gains quickly but it has a steep hill to climb.

World leaders congratulate Macron

Spokesperson for German Chancellor Angela Merkel Steffen Seibert tweeted: "Congratulations Emmanuel Macron. Your victory is a victory for a strong united Europe and for the Franco-German friendship."

President of the European Commission Jean-Claude Juncker tweeted his congratulations: "Happy that the French have chosen a European future. Together for a stronger and fairer Europe." The President of the European Council Donald Tusk echoed these sentiments and congratulated the French people for choosing "liberty, equality and fraternity" over the "tyranny of fake news".

Despite his earlier support for Marine Le Pen, US President Donald Trump congratulated Macron on his victory and tweeted: "I look forward to working with him!" Meanwhile Russian President Vladimir Putin responded to Macron’s victory with a call to "overcome mutual mistrust and unite to ensure international stability and security".

The above article was first published on www.internationaltaxreview.com on 8 May 2017 and has been republished with the approval of the Publisher. Further copying and distribution are prohibited without permission of the publisher.