Thursday, 20 January, 2022

“Floating TIPP”: why Macron’s proposal is a bad idea

It is the return of a political sea serpent. To alleviate the anger of the “yellow vests”, Emmanuel Macron on Tuesday promised a mechanism for freezing fuel tax increases in the event of a sharp rise in oil prices. A device largely inspired by the floating TIPP set up by the government of Lionel Jospin in the early 2000s. A costly measure that could get France out of the Maastricht agreements, according to François Ecalle, former general rapporteur at the Court of Auditors and public finance specialist, author of several analyzes on TIPP on his blog

Challenges – With the announcement made by Emmanuel Macron of a possible freeze in the increase in fuel taxes in the event of a peak on oil, are we witnessing the return of the floating TIPP?

Francois Ecalle – You must first keep in mind that this is not the first return of the floating TIPP. At the start of his mandate, François Hollande had already returned to it for a few months with the Moscovici decree which had lowered the fuel tax by 3 cents between October and November 2012. At the time, France was faced with the same increase in crude prices, with Brent above $ 100. The experiment did not last: with the inflection of oil prices, the government quickly put an end to this device, the legality of which was doubtful. From what I have read of the announcements made by Emmanuel Macron, we are rather approaching the mechanism set up by Lionel Jospin in the early 2000s. That is to say something quite specific which would reduce taxes – or freeze the increase in taxes – levied on fuels of several cents in the event of peak oil.

Can the state afford such an expensive measure?

What is certain is that it can get very expensive, very quickly. Everything is relative, of course, because the TIPP only represents 30 billion euros out of the 1,000 billion euros in compulsory deductions. But if you lower the fuel tax by 10%, that still amounts to 3 billion euros, that is to say a tenth of a point of GDP (0.1%). However, France is in a constrained budgetary framework with a deficit of 2.8% -2.9%. With 0.1 additional point, it could come dangerously close to the fateful bar of 3% of public deficit which would bring it out of European budgetary nails. Above all, now is not the time to lose new taxes. While the global economy is still favorable, France should seek to reduce its deficit. We cannot afford to incur new expenses!

Unless you engage in compensatory savings …

Yes, but Emmanuel Macron has already launched many avenues for saving public spending. They must already be applied. Another solution would be to create a new tax. But I am not sure that this fits with the claims of the “yellow vests” …