Simply Economics, from Mexico

Inflation Boosts Tax Collection, French Elections and Economic Implications

Inflation gives wings to tax collection in Mexico, with the Treasury set to earn 23,000 million more in taxes in 2024. The upcoming French elections have significant financial and economic implications. Stay informed about the impact of inflation on taxes and the potential economic consequences of the French elections. This episode provides valuable insights into these important economic developments in Mexico and France.Sources:https://elpais.com/economia/2024-07-04/la-inflacion-da-alas-a-la-recaudacion-hacienda-ingresara-23000-millones-mas-por-impuestos-en-2024-un-aumento-del-84.htmlhttps://www.dw.com/es/elecciones-en-francia-lo-que-est%C3%A1-en-juego-para-la-econom%C3%ADa/a-69562924Outline:(00:00:00) Introduction(00:00:43) Inflation gives wings to tax collection: the Treasury will earn 23,000 million more in taxes in 2024, an increase of 8.4%(00:03:28) Elections in France: what's at stake for the economy

Duration:: 6m
Broadcast on:: 05 Jul 2024
Audio Format:: mp3

Inflation gives wings to tax collection in Mexico, with the Treasury set to earn 23,000 million more in taxes in 2024. The upcoming French elections have significant financial and economic implications. Stay informed about the impact of inflation on taxes and the potential economic consequences of the French elections. This episode provides valuable insights into these important economic developments in Mexico and France.

Sources:
https://elpais.com/economia/2024-07-04/la-inflacion-da-alas-a-la-recaudacion-hacienda-ingresara-23000-millones-mas-por-impuestos-en-2024-un-aumento-del-84.html
https://www.dw.com/es/elecciones-en-francia-lo-que-est%C3%A1-en-juego-para-la-econom%C3%ADa/a-69562924

Outline:
(00:00:00) Introduction
(00:00:43) Inflation gives wings to tax collection: the Treasury will earn 23,000 million more in taxes in 2024, an increase of 8.4%
(00:03:28) Elections in France: what's at stake for the economy

(upbeat music) - Good morning and welcome to Simply Economics from Mexico. It's Friday, July 5th. On today's show, inflation gives wings to tax collection, as the treasury is projected to earn 23,000 million more in taxes in 2024, an increase of 8.4%. Plus, we'll discuss what's at stake for the economy in the upcoming elections in France. This coverage and more, up next. I'm David, and you're listening to Simply Economics from Mexico. We start off with a look at Spain's tax revenues, which reached record levels in 2023, after unprecedented figures in the previous two years. The treasury collected a total of 271.9 billion euros last year, an annual increase of 6.4%. But unlike 2021 and 2022, inflation was the main driver behind this growth. Here with more details is our economics correspondent. So break this down for us. How much of the increase in tax revenue was due to rising prices? - Well, David, according to calculations by the independent authority for fiscal responsibility, known as the IRF, 3.6 percentage points of the 6.4% increase in 2023 can be explained solely by inflation. This marks a change from the previous two years when tax revenue growth was driven by a combination of other factors beyond just rising prices. But in 2023, with inflation hitting multi-decade highs in Spain and many other countries, it became the predominant force behind the treasury's record hall. - And it sounds like this inflation effect on tax revenues is expected continue into 2024, even as price growth moderates somewhat. What are the projections showing? - That's right, the IRF released their forecast for 2024 tax revenues. And they estimate the total will reach 294.8 billion euros. That would be an increase of about 23 billion euros or 8.4% compared to 2023. The two biggest sources of tax revenue, personal income tax and value added tax, are each expected to bring in roughly 8 billion euros in additional revenue in 2024. So while inflation is gradually cooling off, it will still be high enough to keep pushing tax revenues to new records, assuming the IRF's projections are accurate. - Certainly an important trend to watch for both government budgets and taxpayers' wallets alike. Are there any potential downsides to tax revenues being so heavily influenced by inflation? - There are a couple potential issues to consider. One is that if inflation falls faster or further than expected, it could leave a bigger hole in the government's projected tax revenues. There's also the fact that inflation driven tax revenue growth can be something of a double edged sword, because while it boosts the treasury's coffers, it also means consumers are paying more for goods and services. So it's not necessarily an unambiguous positive for the broader economy. Still, from a pure public finance perspective, the treasury is undoubtedly benefiting from the additional revenue, which gives the government more fiscal breathing room. - Important context to keep in mind as we track these economic trends in the months ahead. Thank you for that insight and analysis. Shifting our focus to France, the country is facing a pivotal moment as it heads into early legislative elections following President Emmanuel Macron's decision to dissolve the National Assembly. The outcome could have significant economic ramifications for the country and beyond. Here to discuss the stakes is our correspondent. So what prompted Macron to call for these early elections? - Macron made the surprise announcement to dissolve Parliament after his party suffered a major defeat to Marine Le Pen's far-right National Rally Party in the European parliamentary elections. He framed it as giving voters a chance to choose France's parliamentary future. But the move caused immediate financial turmoil with the French stock market index falling sharply and government debt interest rates rising as investors were caught off guard. - And now as the elections approach, what are the leading parties proposing that has investors so nervous? - Both the far-right National Rally and the newly formed left-wing alliance called the New Popular Front are promising generous measures to boost voters' purchasing power if they win. This includes plans to withdraw Macron's controversial pension reform that raised the retirement age and even lower it further. Economists warn France is already facing a dire financial situation with high public debt and deficits and that politicians are making unrealistic promises to woo voters. - Looking ahead, what are the potential consequences and risks of the different electoral outcomes? - Analysts believe any of the likely scenarios will bring political and financial instability. If no party wins a clear majority, France could face parliamentary deadlock and a weakened president. If the National Rally leads the government, its policies could put France on a collision course with the European Union. Its fiscally expansive agenda could also embolden other populist leaders and threaten the stability of the Eurozone. Clearly, the stakes are high for France's economy and its role in Europe as voters head to the polls. Thank you for that insightful analysis. We will continue to closely monitor the outcome and fallout of France's pivotal early legislative elections. And with that, we wrap up our stories for today. Thanks for listening to Simply Economics from Mexico. We'll see you back here tomorrow. (dramatic music) [BLANK_AUDIO]