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French Government Says Raising Power Tax Won’t Hit Consumers

By Francois de Beaupuy
The lines coming from Paluel nuclear power plant, operated by Electricite de France SA (EDF), in Seine-Maritime, Normandy, France, on Monday, Jan. 24, 2022. France should reconsider its plan to halt a dozen of Electricite de France SAs atomic reactors by the middle of the next decade, as recent unplanned outages and an expected increase in electricity demand highlight risks to energy security, the countrys nuclear regulator said. Photographer: Nathan Laine/Bloomberg (Nathan Laine/Bloomberg)

(Bloomberg) -- France says a proposed increase to its power tax won’t hurt most households as it aims to deliver a €60.6 billion ($66.3 billion) fix for its creaking public finances and rebuild investor confidence.

The draft budget for next year, presented on Thursday, expects €3 billion in additional tax revenue from a levy on electricity consumption. It also trims subsidies for buying electric cars by a third to €1 billion. 

“This is the end of the tariff shield,” Energy and Climate Minister Agnes Pannier-Runacher said at a press conference in Paris on Friday. “As all ministries, I’m taking my share in the budgetary effort.”

The government has argued that bills of households on regulated power tariffs will decline by at least 9% from Feb. 1 thanks to lower market prices, which will more than offset the planned tax hike. France had reduced its tax on power in 2022, at a cost of €26 billion, to partly shield businesses and households from a surge in bills stemming from nuclear production issues and Europe’s gas crisis.

The tax increase would delay France’s green transition, power lobby Union Francaise de l’Electricite said in a statement. “Such a decision would clearly impact the purchasing power of households and the investment capacity as well as the competitiveness of companies operating on the French soil.”

Other spending cuts include trimming subsidies for home renovations, district heating and other clean energy projects by a total of €1.4 billion.

Spending on renewables and other energy projects will climb by about €4.6 billion next year as France keeps adding green capacity even as falling wholesale power prices boost the need for subsidies. A large tender for offshore wind projects will be launched in 2025, Pannier-Runacher said. 

Other provisions include:

  • State-owned Electricite de France SA will resume paying dividends worth €2 billion next year.
  • Higher sales tax on the most polluting vehicles to fetch €300 million in extra receipts.
  • An increase in the value added tax on some gas boilers should yield €200 million
  • Levies on natural gas and airline tickets could boost government revenue by €1.5 billion.

The budget proposal could be modified during debate in France’s deeply divided National Assembly, where Prime Minister Michel Barnier’s minority government can easily be toppled by both the leftist opposition and hard right parties.

©2024 Bloomberg L.P.