France/Removal of the property tax: what effects on local finances?

Published on 02/07/2022 | La rédaction


The General Directorate of Public Finance (DGFiP) publishes a study on the reform of the housing tax on primary residences and its effects. Adopted in 2018, the goal of this reform is to completely eliminate the housing tax on all primary residences in France by 2023.

The DGFiP study on the reform of the taxe d'habitation(new window) outlines the initial consequences of the reform on local authorities, the former beneficiaries of the tax.

Until now, the amount of the taxe d'habitation(new window) varied from one municipality to another, since the rate of the tax was voted by the local authorities. It also depended on the characteristics of the residence (size, level of comfort, etc.) and the employment status of the taxed household (income and household composition). These tax criteria remain in force for second homes.

A reform mainly compensated by "household" taxes

In its study, the DGFiP recalls the State's desire to reimburse to the nearest euro the amount previously collected by local authorities. A reallocation of resources has been planned:

  • the communes benefit from the transfer of the departmental share of the property tax on built-up properties (new window ) (TFB) with a reduction in the amount of the tax.36.8 billion nationally (36% of the resources collected by local authorities);
  • the inter-municipal tax authorities and the City of Paris receive a fraction of the nationalvalue added tax(new window) (VAT);
  • the départements and the Lyon metropolitan area also receive a fraction of the VAT to compensate for the loss of the TFB.

The neutralization of the impacts of the tax reform, notably through the VAT, leads to anincrease in the share of "household" taxes (i.e., taxes paid by households) in the basket of resources of local governments. In 2021, these household taxes will represent 80% of local tax resources (69% in 2020). Economic taxation, which includes the contribution on the value added of companies (new window) (CVAE), represents 20% of the total.

A compensation system in the process of being balanced

In addition to the transfer of resources, the compensation promised by the State is provided by the "correction coefficient", which can take the form of

  • a levy in case of overcompensation of more than 10,000 euros ;
  • a payment in case of under-compensation.

This margin is likely to evolve according to the potential difference in dynamics between the revenues collected by the overcompensated municipalities and those of the undercompensated municipalities.

According to the study, for 2021, on a national scale :

  • 51% of communes are in a situation of overcompensation equal to or greater than 10,000 euros;
  • 30% of communes are undercompensated;
  • 9 communes are said to be "neutral" because they did not receive any housing tax.

The rebalancing compensations paid by the State are called "abondements". If we compare the 3.1 billion euros taken from the overcompensated communes with the 3.7 billion euros paid to the undercompensated communes, we obtain a total of 581 million euros paid by the State this year.


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