CMA CGM Faces Windfall Tax to Alleviate Pressure on French Public Finances
Author: Stuart Todd
18 hours ago
The new French government plans to reduce the country’s worrying budget deficit through public spending cuts and “temporary and exceptional” tax increases, a move that will directly impact the transportation sector, with shipping giant CMA CGM being hit hardest.
France needs to find about €60 billion to balance its finances by 2025 and plans to raise approximately €20 billion through increased taxes on large profitable companies and very wealthy individuals.
CMA CGM is expected to bear a windfall tax of several hundred million euros in 2025 and 2026, according to CFO Ramon Fernandez, who warned that this will affect the investment plans of the Marseille-based operator.
According to French media reports, he stated that about €800 million would not be available for investment in new LNG or methanol-powered vessels over the next two years as CMA CGM is decarbonizing its fleet.
Competitive Disadvantage
Ramon Fernandez emphasized that the windfall tax constitutes a “competitive disadvantage” compared to less taxed competitors. He said, “These (taxes) must be limited in time and amount; otherwise, we will not be able to make all investments.”
CMA CGM saw its profits surge post-COVID due to soaring freight rates amid supply chain disruptions. Its profit peaked at $24.9 billion in 2022, triggering a debate in France over whether to tax “excess profits” from businesses.
Since then, shipping rates have normalized, and the group reported a profit of $1.4 billion for the first half of 2023.
Although the windfall tax targets the entire French maritime industry, only companies with annual turnover exceeding €1 billion will be affected. CMA CGM is the sole operator meeting this criterion.
The windfall tax will be calculated at 9% of operating income in 2025 and 5.5% in 2026.
This tax specifically targets maritime activities and does not extend to, for example, CMA CGM’s logistics division, Ceva Logistics.
More broadly, French shipping companies are greatly relieved that the new government has decided not to abolish the current “tonnage tax” fiscal scheme implemented in the industry. This plan allows operators to avoid paying corporate taxes in the same way as other companies. Due to fluctuations in global shipping rates, this scheme varies significantly each year.
Rodolphe Saade, President and CEO of CMA CGM, whose family holds a majority stake in the group, has repeatedly emphasized the benefits of the “tonnage tax” plan, believing it “enables European companies to compete with Asian companies that have more favorable tax regimes.”
He added, “If France decides to change this system today, CMA CGM will be at a significant disadvantage.”
Airline Industry Tax Increase
The French government also proposes increasing taxes in the air transport industry by significantly raising the so-called “solidarity tax” on airline tickets, which contributed €450 million to €460 million to state finances last year.
This tax applies to all flights departing from France, regardless of the carrier. Currently, a Paris-to-New York economy class flight incurs a charge of €7.50, while business class is charged €63.
“If this tax increase proposal is implemented, it will have a significant impact on our companies—Air France, KLM, and Transavia’s competitiveness,” said Ben Smith, CEO of Air France-KLM Group. “The distortion in competition has never been so strong in France.”
The president of the airline organization FNAM and Corsair Airlines’ head Pascal de Izaguirre commented on the prospect that French airlines might face a solidarity tax bill of about €1 billion next year: “This is unprecedented. The industry is already heavily taxed, which could further weaken French airlines that have been declining for 20 years.”
In addition to increased taxes, balancing France’s national budget mainly involves public spending cuts. There are rumors that the plan to invest €100 billion in rail transport until 2040—aimed at reducing the country’s carbon emissions and including significant expansion and urgent upgrades of the railway network—may be scrapped.
Announced by the previous government in February 2023, this plan was a key part of expanding and upgrading the railway network.
In an early meeting of the rail industry this month, newly appointed French Transport Minister François Durovray explained that the €100 billion plan “remains on the government’s roadmap,” but warned that its implementation is “fragile” due to budgetary savings required by the state.
“We urgently need to determine sustainable financing methods to protect all infrastructure from the impact of government budgets,” he said.
Durovray called for the country’s commitment to rail freight to be “maintained or even strengthened.”
Fearing that budget constraints could lead to cuts in public spending on rail transport, Jean-Pierre Farandou, head of SNCF, urged the government to honor the previous Transport Minister’s pledge to increase annual aid for single-segment rail freight by €30 million to €200 million. But will he get his wish?
Farandou also stressed the need to prioritize maintaining the good condition of France’s railway network, revealing that SNCF would spend €1.7 billion on maintenance in 2024. He warned that an additional €1.5 billion per year would be needed for network maintenance starting from 2027.
Spending Cuts and Rail Investment
Meanwhile, it remains unclear whether France’s public spending cuts will affect a major public investment plan worth €4 billion that supports rail freight and is expected to be finalized later this year.
Named Ulysse Fret and running until 2032, this ambitious goal aims to double the industry’s modal share to about 18% by the early part of the next decade.
Of the €4 billion plan, the French government has committed to providing €2 billion in state funding, with the remaining €2 billion to be raised from French regions and local authorities as well as the EU.
The national budget for 2025 will be debated in the French parliament over the next few weeks and has already become the subject of numerous amendments submitted by lawmakers supporting the government. However, given the critical state of France’s public finances, there is little room for maneuver.
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