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France suspends proposed fuel tax hike

France suspends proposed fuel tax hike

KPMG’s Merriden Varrall and Louis Raymond discuss the French Government’s suspension of a proposed fuel tax increase after three long weeks of intense protesting.

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Merriden Varrall

Director, Geopolitics & Tax

KPMG Australia

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French President Emmanuel Macron has announced that his government will be suspending a planned fuel tax increase after three long weeks of intense protesting. The protests, which took place all around the country but perhaps most visibly in Paris, are thought to have been some of the worst in the past decade. The images of Paris in riot mode have captivated global onlookers as water cannons and tear gas were deployed on the famous Champs Elysees promenade to dispel members of the ‘Yellow Vest’ movement, which takes its name from the high visibility vest worn by protesters.

Macron’s predecessors have in the past faced significant pressure from protesters. Up until Tuesday it looked as though the French President was determined to stand by his fuel tax hikes. However mounting pressure from the retail sector, as well as tourism concerns, seem to have forced an end to the impasse with the French Prime Minister Edouard Philippe announcing a six-month moratorium on planned tax hikes on fuel. In addition to this, the planned increases to the cost of gas and electricity, set to take effect from January 1, have been suspended for three months during the winter months.

2019 Finance Bill

The fuel tax increase at the heart of the protests is part of the 2019 Finance Bill presented at the meeting of the Council of Ministers on 24 September 2018.

Major household tax cuts headlined the 2019 Finance Bill however it was the minor increases in tax that seemingly attracted the most public attention. Macron’s government introduced a suite of measures designed to curb behaviour seen as being harmful to health or the environment, including the much maligned increase in tax on fuels and an increase in tax on tobacco. These measures could be interpreted as a nod to the environmentally conscious members of Macron’s party after the spectacular resignation of his environment minister in August of this year. Former minister Nicolas Hulot left the job citing concerns about the rate of progress of France’s environmental reform.

Impact on business

France’s Finance Minister Bruno Le Maire met with the employer’s federation and retailers on 25 November to assess the economic impact of the riots over fuel tax hikes. The riots coincided with popular ‘Black Friday’ sales on 23 November and are said to have significantly damaged the trading prospects of retailers in the affected areas.

French oil and gas company Total have also complained that protesters were restricting access to fuel depots across the country causing several dozen of its fuel stations to run dry.

Will the fuel tax policy be revived?

While in Argentina for the G20 Leader’s Summit last week, Macron addressed a media conference with a message for the rioters.

"I will always respect differences. I will always listen to opposition, but I will never accept violence," Macron said.

At the time of the news conference Macron seemed defiant and totally unwilling to bend to the demands of the rioters. In the days that followed, the pressure clearly became too great and his stoic position was no longer tenable. Now that Macron has made concessions and suspended his planned fuel tax increase he faces an uphill battle if he is to reintroduce the unpopular policy. The backflip also doesn’t bode well for the President’s ability to pass other unpopular policies of his economic agenda.

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