Live Markets: France and Italy target companies to shrink deficit: What it means

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04/10/2024 10:33

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FRANCE AND ITALY TARGET COMPANIES TO SHRINK DEFICIT: WHAT IT MEANS
    France and Italy have both taken steps this week to control their respective rising budget
deficits, both seeking to target those with the deepest pockets, such as large companies, with
tax rises.
    New French Prime Minister Michel Barnier on Thursday said he will increase corporate tax -
reports have hinted the rise could be from 25% to circa 33% - applying to companies with a
turnover of more than 1 billion euro per year. 
    "Such large companies tend to generate most of their revenues outside France," writes
Goldman Sachs in a note, adding that an 8 percentage point rise in corporate tax could knock 8%
off EPS.
    "Taking into consideration the domestic exposure of the CAC 40 ... we estimate that their
profits would fall by just 1%," they add, noting that only 15% of revenues of CAC 40  .FCHI 
companies are generated in France. 
    Goldman believes that the fundamental impact from higher corporate taxes has likely already
been priced. 
    "Overall, we believe that the vulnerability of French domestic stocks is relatively limited
from here," they add.    
    In Italy, Economy Minister Giancarlo Giorgetti, also on Thursday, said they plan to increase
taxes on companies operating in sectors that are benefitting from favourable conditions, such as
the banking sector and defense names.
    Regarding the banking sector, Italian investment bank Equita SIM says proposals would be
able to raise resources of about 1-1.2 billion euros for the government, "an impact that would
therefore not be particularly relevant for the sector."
    
    (Samuel Indyk)
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