The French Eco Tax suspension: Gifting away French middle class money to Italy?

The French Eco Tax suspension: Gifting away French middle class money to Italy?

The Ecotaxe in France is supposed to raise about 1140 million Euros (didn't find this figure anywhare in the finance bill plf 2014, but different financial media provide this figure). Now, we are considering suspending them. Obviously, this is being done to destroy the environment and save today's economy.

But will it save the economy? The company which collects the tax and takes a 250 million Euro cut is called Ecomouv. It has invested in sensors on the highways which allow it to assess the tax. If one suspends the tax, its investment will go down the drain. This is called business risk.

But no, they were smart. Obviously, because an Italian company owns 70% of Ecomouv. They have a contract saying that if the ecotax is annulled, the French government owes them 800 million Euros. This is 0.8 billion Euros!

Let's put this in perspective. The French GDP is about 2,000 billion Euros. Total tax receipts from all the taxes in France are 300 billion Euros. Almost 1 full billion of these Euros is likely to be gifted away by cancelling the tax. Besides the loss in revenue, another 1 billion Euros.

Agriculture Minister Stéphane Le Foll might understand that the government is bound by the contract signed by the previous government. But François Holland prefers to leap before looking at the outcomes, confident that he will be able to light a fire to interest the French public, and then diffuse it, and come out as a hero. He has suspended the ecotax, not cancelled it. Maybe a sine die suspension is the way of getting out of an annulation. Delay is the highest form of denial.

Ecomouv is a French company, whose registered capital is 70% owned by Autostrade per l'Italia, an Italian motorway company. The other shareholders are French: Thales ( 11%), SNCF (10%), SFR ( 6%) and Steria ( 3%). Their total investment will probably be about 600 million Euros when all the equipment is put in place (various media provide this estimation). The logic of the 800 million Euros is not really clear.

Quote for the future: A rich man doesn't count his pennies: if Warren Buffet was to count his pennies, he would probably have to spend his whole life doing only this.

However, if the 30 million middle class Frenchmen and Frenchwomen don't watch some of the public pennies each year: the government may gift them away.

The same maybe true of other countries.                                

Are the middle classes closer to the rich or the poor?

If we need to create a just society, we need to promote equity. But that does not mean equality. Evidently, those who work more or are more gifted should be allowed to earn more? Also those who have sacrificed their childhood to make a career should earn more. This is what vertical equity is all about.

But how much more? This is the question which is now bothering French people. Some say three times more, some say five times, even ten times. But is there anyone saying hundred times?

To appreciate French reality, here is an idea of some differences between the payment of top managers and workers. This comes from manipulating figures from the Finance bill for 2014 (its not a law yet).

More and more French workers earn the minimum wage which in January 2013 was 9.43 Euros per hour or 1,430 Euros per month. After taking out social security charges and some minimal taxes, the monthly net minimum wage works out to 1,120 Euros a month or 13,440 Euros a year.

There are at least a 1000 people, according the finance bill for 2014, who earn more than a million Euros net per year. This is about 75 times what people on the minimum wage are earning. But of course they are earning more than a million and not just a million. To appreciate how much more, here are some rudimentary calculations.

The French government expects to get 260 million Euros by taxing the cmopanies who pay them at 50%. This is 260,000 Euros per person (since there are 1,000 of them).

This means that the tax base must by 520 million Euros or 520,000 Euros per person

.However, this new tax will apply only to the revenue over a million Euros.

This means that the average taxable income of these people must be 1,520,000 Euros.

This is about 113 times what a person on the minimum wage takes away.

Now, this is only income of the top managers. These thousand managers take away 1.52 billion Euros of French income. With a GDP of 2000 billion, these people earn about 0.76 % of total income. However they comprise only 0.0015 % of the French population of 65 million people.

Of course, we have compared the richest with the lowest of the middle classes. The average French income, if we divide 2000 billion by 65 million, works out to about 31,000 Euros per year. People earning 1,520,000 Euros are therefore earning about 50 times the middle classes.

Income inequalities in France	Number of people	total income in millions	Annual Income per person Euros	Monthly income	Times minimum wage
CEOs of top 120 enterprises	120	336	2 800 000	233 333	208.3
Others in top 1000	880	1 184	1 345 455	112 121	100.1
Average of top 1000	1 000	1 520	1 520 000	126 667	113.1
French population	65 000 000	2 000 000	30 769	2 564	2.3
Minimum wage			13440	1 120	1.0
Source: Diverse media with my own approximations

Evidently, all the multiples are exaggerated since we are working with pre-tax figures and not post-tax. With progressive taxation, the difference should be a little less. But if the super-rich get a lot of tax cuts from their investments, this may not be evidently so. In any case, it gives you an idea. Already, for this new tax for solidarity, the rate has been reduced from 75% talked about by François Holland to 50%. Moreover, it is not being paid by the rich but by the enterprises. So much for solidarity even within the borders of a country!

Lets go one step further. This tax is an expense for the company and reduces the profits. As a result, one-third of the solidarity tax reduces the corporate tax. Therefore for firms the solidarity tax is only 50%-17%= 33%: the same as the tax on corporate profits.

Middle classes are certainly earning more than the poor. Maybe three to ten times more. The rich are earning about fifty times more that the middle of the middle classes.