Tax Shield to be Abolished
Tuesday 15 March 2011
The government has announced the abolition of the bouclier fiscal, as the first step to the effective abolition of the wealth tax.
In a preliminary statement about the prospective reform of the taxation of personal wealth, François Fillon, the French Prime Minister, announced last week the one measure they seem to be agreed upon – ending the bouclier fiscal, a complicated mechanism that ensures no-one is taxed on more than 50% of their income.
The Prime Minister stated abolition of the tax shield was necessary as it had become a ‘symbol of injustice’, although what he probably meant to say was that this decision was politically necessary in order to pave the way for the more controversial abolition of the wealth tax.
So the government is closing in on this issue, but without a great deal of conviction. At a time of austerity, and one year before the presidential elections, many senior politicians see the abolition of the wealth tax as a dangerous step for the government to take.
Although we have yet to be told precisely what reforms will be introduced, we probably now know more about what will not happen.
- There will be no taxation of small savers
- There will be no reform of the taxation of the principal residence
- There will be no toughening of inheritance taxation
- There will be no new higher band of income tax
But just what will happen, remains unclear; we are in the realms of the 'known unknowns'.
Except perhaps for the likelihood that around 300,000 households will be taken out of liability for wealth tax, by increasing the threshold at which it becomes liable.
At the moment, anyone with wealth higher than €800,000 is liable for the tax, although there is a 30% discount on the main home.
As an alternative to raising the threshold, the government may well abolish the tax altogether, to be replaced by a new tax, provisionally called l’impôt sur le revenu de la fortune (IRF).
The object of this tax will be not to tax wealth per se, but income arising from wealth, but only for those with the very highest levels of wealth.
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