Review 2008 – Preview 2009

Review 2008 – Preview 2009

by | Jan 7, 2009

2008 will forever be burned into the mind as a very memorable year for the British expatriate in France, but for all the wrong reasons; an ailing global economy, a suffering Pound and house prices falling through the floor.We have learned a whole new vocabulary this year, such as “Quantitative easing” (printing money because we have run out) and “behind the curve” (we have no idea what we are doing). Another day equals another bailout.

However, either all this mayhem is beginning to slow down, or we are just getting so used to bad news we simply don’t notice it anymore.

At least we seem to be on an upward curve as far as currency is concerned. At the day of writing the GBP/EUR rate is almost identical to last month, but since then we came perilously close to parity, backing off at the last minute.

A report from UBS published today stated: “Any chase for parity in euro-pound is a clear overshot and offers limited risk-reward“. However, before you mop your brow in relief at being out of the woods, we have the Bank of England meeting tomorrow to decide interest rates and the European Central Bank interest rate decision meeting is next Thursday (they delayed by a week for reasons unknown). This is where I get to use the phrase “behind the curve”, as this is how most analysts perceive the ECB at the moment, painfully slow in taking the required action.

The reason for the recent bounce back in the value of Sterling was the fact that the ECB was “behind the curve” not reducing interest rates fast enough to prop up a failing economy. Most believe that they will have to act now and drop interest rates and this imminent drop has been accounted for, thus the value of the Euro fell.

However, if the ECB decides to stay even further behind the curve and does nothing then the Pound revival party may well be put on hold, as interest rates will remain higher in the “Eurozone” than in the UK. Sterling’s future also depends what action the Bank of England takes. If the BoE decides to further reduce interest rates, this will also jeopardise the short term prospect of revival.

Looking forward a little further into the year, prospects for the Pound look significantly better, for reasons I discussed in the last news BLOG.

On a more local basis, the British and French governments have been working on a new double tax treaty, for what seems like an eternity. A new treaty was signed in January 2004, but this was torn up and thrown in the bin and was replaced by a new version in June 2008, after four years of disagreement. The fact that a new one was signed, led many to believe this one might actually come into force. To come into effect in 2009 the new treaty had to be ratified by December 31st 2008. Of course, this did not happen, thus we stay with the 1968 version until at least 2010 and the bickering continues. People have been waiting such a long time for a new tax treaty to come into force; they had actually forgotten why it was even significant.

One of the things that many awaited with eager anticipation was that assets outside of France would be exempt from wealth tax for the first five years of residency. Thus many have been waiting with baited breath for the law to pass; however, it has been beaten to it by a change in French law, rendering this change in the treaty somewhat irrelevant.

Article 885A of the general tax code was amended 4th August 2008 with neither a red carpet, nor a 10 gun salute. This rule states that anyone who has previously been outside of France for the last 5 years can come to France and have a 5 year exemption from wealth tax on any assets left outside France. Though it obviously has a great effect on the individual moving to France it came in under the “Modernisation of the economy” rules, thus its introduction was barely noticed.

Another sneaky introduction was the addition to the Social Charge in the budget. Social charges were, on their introduction, supposed to be a temporary thing, however, not only are they here to stay they are increasing. The latest introduction will add another 1.1% to the social charge tally; bring the total to 12.1%.

Another introduction that did get the 10 gun salute was the new “auto-entrepreneur” regime. This introduces the idea of an individual being able to start a small business and only pay costs when they make money! This has been hailed as a new and original concept that will catapult France back to the great nation it once was and sweep the competition aside; the right to personal “quantitative easing” one might say. Someone should tell them that this concept is as old as the industrial revolution itself; and you thought the ECB was “behind the curve”!

Happy New Year!

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