Presentation made by Nicolas Hengy, France, at the 16th Annual OECD Accruals Symposium held at the OECD Conference Centre, Paris, on 21-22 March 2016.

1. 1
Monitoring tax expenditures : lessons
from a french experience
Nicolas Hengy
Head of tax revenues and budget balance Unit
Budget Directorate
Ministry of Finance and Public Accounts
21 March, 2016
16th Annual OECD Public Sector Accruals Symposium

2. 2
1. Growing fiscal issue
► Tax expenditures spendings since 2009
► Focus on the main tax credits
2. Legal framework in France
► Definition and targets
► A history of legal requirements
3. Strengthening governance & transparency
► Discussing tax expenditures within the budget cycle
► Key factors for improving governance
► Tax expenditures in budget documentation
Overview

3. 3
1. Growing fiscal issue
2. Legal framework
3. Strengthening governance & transparency

4. 4Tax expenditures spendings since 2009
Sources : PLF 2011, 2012, 2013, 2014 & 2015
• 420 tax expenditures in 2015 for total
amount of 82 Bn€  4% of GDP
• 30 % are tax credits
Increase mainly linked
with new tax credit
compensating social
contributions on wages
« CICE »

5. 5
1. Growing fiscal issue
2. Legal framework
3. Strengthening governance & transparency

6. 6
• 1967 : Germany published a report on budgetary subventions
and tax (« Subventionsbericht »). Meanwhile, the « tax
expenditure » concept is introduced by Stanley S. Surrey, former
Assistant Secretary of the US Treasury
• Definition in France : tax expenditures are defined as legal or
statutory measures (tax deductions, tax credits, tax exemptions,
rate relief) that imply lower tax revenues for the State
compared to a “normal” tax code.
• 2 targets :
– Fiscal inventive
– Fiscal redistribution
Definition & Targets

7. 7A history of legal requirements
1980■ Since 1980 (1980 budget act – art 32) : the government is
required to evaluate tax expenditures in budget
documentation. Published annex named « Voies et Moyens Tome
2 »
2001
2009
2014
■ Since 2001 (Organic budget act « LOLF » - art 5) : each
budgetary program report includes an evaluation of
associated tax expenditures
■ Since 2009 (the 2009-2013 Public finance planning act) : every
tax expenditure creation must be compensated with the ending of
another one, every new tax expenditure must be evaluated
within 3 years
■ Since 2014 (the 2009-2014 Public finance planning act – art 19) :
tax expenditures and tax credits spendings are capped every
year : Ceiling in Billion € 2015 2016 2017
Tax expenditures 80,6 81,8 86
Tax credits 24,7 25,9 30,1

8. 8
1. A growing fiscal issue
2. Legal framework
3. Strengthening governance & transparency

9. 9Discussing tax expenditures within the budget cycle
■ Since 2013 : several meetings are held every year in may
between the Budget Directorate and the line ministries : « tax
policy conferences »
 Cross examination of every tax expenditure
■ Since 2014 : tax conferences and budgetary spendings
conferences are held together
 Joint decision by cabinet on budgetary spendings and tax
expenditures to ensure a comprehensive assessment of
public policies
■ Since 2015 : a specific focus on small taxes and earmarked
taxes

10. 10Key factors for improving governance
■ Close coordination within the Ministry of Finance (Budget,
Treasury and Tax Legislation)
■ Applying good practices of budget negotiation
 Set an initial target
 Detailed proposition to meet it
 Close monitoring
■ Increase transparency
 Previous efforts on budget documentation were crucial
 Mandatory periodic review by law
 Since ESA 2010, some tax expenditures are treated as real
expenditures in the accounting system. This goes in line
with our own framework.

11. 11Tax expenditures in budget documentation
■ « Voies et Moyens Tome 2 » annexed to budget act every year
includes :
 Creations and deletions
 10 most expensive
 For each tax expenditure : number of recipient and cost
estimation for previous, current and following year
 Tax reference standard for each tax
■ “Projet annuel de performance” and “Rapport annuel de
performance” :
 annexed to budget act for every budgetary program,
includes an evaluation of associated tax expenditures
■ “Compte général de l’Etat” :
 Central government accounts, certified every year, with a
specific focus on tax expenditures for each tax

12. 12
Thank you for your attention
- nicolas.hengy@finances.gouv.fr
- www.performance-publique.gouv.fr

13. 13
Annexes

14. 14Tax expenditures : 84 billion € in 2016
5 areas represent
around 70% of the
total amount
These same 5 areas
represent around
45% of the total
number of tax
expenditures

15. 15Tax expenditures top five in 2016
• In 2016, the top five tax expenditures account for 34 % of the
total.
• In 2016, the top ten tax expenditures account for 51% of the
total
Tax credit for competitiveness and employment 13,0
Tax credit for innovation and research 5,5
10% tax deduction on pensions 4,2
Reduced VAT rate (10%) for renovation housing 3,3
Reduced VAT rate (2,1 %) for specific medication 2,5
Total 28,5
Estimation for
2016 (Billion €)

16. 16Focus on the main tax credits in 2015
Source : PLF 2015
• 3 tax credits represent more than 70% of total tax credits
spendings
• Tax credits are the most expensive tax expenditures
Tax credit
compensating
social
contributions
on wages
Tax credit to
stimulate R&D
Income
supplement
program for
low wage
workers