Geopolitics and luxury. Faced with rising taxes, France’s major luxury groups are reacting.

As France's debt plummets, the French government is preparing to tax big business. At the end of the second quarter of 2024, France's debt stood at €3,228.4 billion, equivalent to 112% of GDP, according to the latest INSEE figures.

The government recently presented its plan for Budget 2025, and the deficit was central to it. The coalition led by Prime Minister Michel Barnier wanted to introduce an exceptional contribution from large companies and a temporary increase in corporation tax (IS); this increase should apply to around 440 groups with more than one billion in sales in France over the next two years.

The measures announced represent a tax increase of 31% for companies with revenues in excess of €3 billion and 15.5% for companies with revenues of between €1 billion and €3 billion.

Thanks to this tax manoeuvre, the government hopes to recover revenue of €8 billion in 2025 and €4 billion the following year. The French luxury goods industry giants have been busy crunching the numbers.

For LVMH, the tax increase is expected to represent between €700 million and €800 million. LVMH CFO Jean-Jacques Guiony said at a conference to mark the publication of the latest figures for the third quarter of 2024 that 45% of the total tax paid by the group will thus be paid to France, compared with 40% today. The Arnault family group already accounts for 4.5% of taxes paid by companies in France. 'These figures should reassure those who fear that we are not contributing to the budgetary efforts underway', he commented, emphasising the financial effort required of the CAC 40 and top companies in these times of crisis. It should be noted that sales in France account for just 7% of LVMH's total sales, out of a total of €86 billion by 2023.

The government assures us that this increase in the tax burden, which is essential to offset part of the €60 billion needed to pay down the country's debt, should not be applied for more than two years. However, given the slowdown in the luxury goods market, the measure is not going down well.

The Observatoire français des conjonctures économiques (OFCE) estimates that the political context and the reduction in deficits will hurt growth despite a more favourable monetary policy.

The finance bill drawn up by the Barnier government will have a much heavier impact on the economy than forecast by politicians. According to this institution's analysis, the draconian measures associated with Budget 2025 could cut French growth by half in 2025, with only a limited impact on debt reduction.

Again, according to OFCE studies, growth would be slowed by 0.8 points of GDP if the objective of reducing the public deficit to 5% in 2025 is met.

When announcing its results, the L'Oréal group also estimated the potential impact of the economic measure on its finances: just over 250 million euros. Nicolas Hieronimus, Managing Director of L'Oréal, raised a crucial point: 'What's important (...) is that French and European companies are put in a position to succeed on the global market in the face of American and Asian competitors who have their own context and their own rules of the game', he said. 'So solidarity, yes, but on the other hand, it is important that the competitiveness of companies is preserved.'

Under these conditions of massive tax increases, will France be able to maintain its competitiveness without being left behind by its European neighbours and international competitors? The economic policy put in place during Emmanuel Macron's terms in office had hitherto relied on lower taxes for businesses since 2017, to boost the economy. The corporation tax rate (IS) was cut from 33.3% to 25%. As a result, the unemployment rate has fallen by two points in seven years. At the same time, the country had successfully attracted foreign economic players, as demonstrated by the latest edition of the Choose France summit and its linked 15 billion investments. Will fiscal austerity deal a fatal blow to this desirability? The prominent French groups will no doubt be carefully analysing the consequences.