Council on Economic Policies (CEP) and the German Institute of Development and Sustainability (IDOS) have launched a series of reports on national tax expenditure regimes, covering topics such as transparency, the fiscal cost of tax expenditures, benchmarking, evaluations and the political economy of tax expenditure reforms. All reports are authored by renowned tax expenditure experts in their country. In addition to the previous reports on The Netherlands and India, this publication focuses on France.
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According to the Ministry of Finance, tax expenditures have a budgetary cost (revenue forgone) equal to 2.9% of GDP, or 6.8% of the total amount of compulsory levies in France in 2023. These derogatory measures take various forms (e.g. exemptions, reduced rates, tax reductions, etc.) and concern most taxes, in particular income tax, corporation tax and value-added tax.
Transparency: tax expenditure estimates are published each year in a report appended to the draft budget for the following year, but the official list is debatable. In effect, these are provisions that derogate from a reference tax standard, the official definition of which can be ambiguous.
Complexity: the official list includes 474 tax expenditures that add to the complexity of the French tax system.
Fiscal sustainability: the fiscal cost, or revenue forgone, of tax expenditures is often difficult to estimate, even if its impact on behaviour is not taken into account, and its total cost is therefore uncertain.
Evaluation issues: there has only been one evaluation of all tax expenditures (in 2011). A small number of tax expenditures have been evaluated since 2011, and these evaluations have often highlighted their low efficiency.
Recommendations: Parliament, the Government and the Court of Auditors have often recommended a systematic evaluation of tax expenditures and the reduction or elimination of the least efficient among them. However, it is politically very difficult to reform tax expenditures as opposition from beneficiaries can be strong.