European Central: Artificial Intelligence Helps French Tax Officials Discover 20,000 Pools
Capgemini/Google
Citizens are not thrilled to pay taxes but in France, it is becoming increasingly harder to cheat the government of their revenue. France's tax authority conducted a trial using artificial intelligence to search for pools undeclared by taxpayers. French citizens are legally required need to declare pools within 90 days after completion. Due to the success of the trial, the technology will be expanded to the rest of the country in an attempt to crack down on undeclared pools. The trial was conducted in the regions of Alpes-Maritimes, Var, Bouches-du-Rhône, Ardèche, Rhône, Haute-Savoie, Morbihan, Maine-et-Loire, and Vendée and found 20,000 pools not previously declared. It does not matter whether the pool is in-ground or above, taxes must be paid regardless. A private 30-square-meter pool has an annual tax rate of 200 euros. This adds up quickly particularly when Frenchmen hid thousands of pools from the government to avoid the tax. Based on estimates a national rollout of artificial intelligence surveillance will be profitable and result in an additional 40 million euros annually in additional taxes. This predicted revenue is important for the program to continue as the total cost from 2021-23 is 24 million euros. As the system of surveillance was developed by Google and Capgemini, this may yet only another reason for people to be annoyed with Google.
While the technology has been relatively successful in finding hidden pools, more work needs to be done to refine the technology's ability to discover undeclared expansions of houses. At the moment artificial intelligence can easily mistake a tent or terrace in a backyard for a house expansion. Another challenge is that trees may confuse the technology and hide housing extensions.
While useful, the technology was also not foolproof. Solar panels were confused for undeclared pools as well which is where the cross-referencing of property records is a crucial step of the tax office's process of confirming that it is indeed an undeclared pool and not something else. As it is estimated that 3.2 million private pools exist in France and that there was a large increase during the pandemic when people had to stay home during lockdowns, the government feels it is a worthy endeavor to make sure that any taxes owed are paid. While taxpayers with undeclared pools may not appreciate this, not only France but other nations across Europe must deal with increased national deficits as a result of attempts to limit the economic damage caused by the Covid-19 pandemic.
France's reputation for high taxes is grounded in reality and can help explain why some citizens may have attempted to avoid paying additional taxes for having a private pool. In 2017, France took the crown in Europe for the highest tax burden when it passed Denmark. That year, tax revenue was equal to 46.2 percent of the GDP. This was significantly higher than the average tax revenue was 34.2 percent for the 34 nations in the OECD (Organization for Economic Cooperation and Development. In 2019 however, Denmark once again had the highest tax burden when France's tax revenue slipped to 45.5% of the national GDP. Part of France's high tax burden is due to social security funds. 52.9 percent of the tax revenue in 2019 was paid to social security funds, the highest percentage for any European nation. France additionally has the highest corporate tax rate in Europe. In 2019, the French implicit tax rate was 33.1 percent, significantly higher than Greece which was in second place with an implicit tax rate of 24 percent. France is in sixth place for the top rate for personal income tax which was 51.5 percent in 2021.
The French have traditionally tolerated high taxes with the understanding that they would receive good public services in return along with a strong safety net for those in need. This however has changed as taxes have continued to increase impacting more people in the country. Examples of tax increases include scrapping tax-free overtime, additional taxes on beer and cigarettes, and arguably Macron's fuel tax finally broke the camel's back. French citizens reliant on cars for travel in areas where public transportation did not exist started the massive protests in Paris known as the yellow vest movement. Citizens are struggling financially and there is also frustration over public services seemingly lowering in quality while taxes continue to rise. While France may be keen to pursue additional tax revenue by finding undeclared pools and home additions, there also needs to be an evaluation of how the government can do more with existing revenue as it is clear that the willingness of French taxpayers to pay is waning.
Some French environmentalists question whether or not private pools should even be permitted as Europe faces severe water shortages this year. In Neighboring Italy, cities such as Pisa and Verona have banned pools from being refilled in order to conserve water. The worse drought in 70 years along with the heat wave has caused these cities to take this measure in order to ensure water is used for more important purposes such as drinking water for people. French politicians do not seem keen on banning pools yet make it clear that more important usage of water needs to be prioritized.
Due to drought conditions in France as well, the nation had to make some difficult decisions such as reducing nuclear energy production at some plants. Without enough river water to cool down all the generators, the plants could not safely continue to operate at their normal capacity. With the ongoing invasion of Ukraine already driving up energy costs this is unwelcome news for France. July of this year was the driest month on record since March 1961 as the nation only had 0.39 inches of rainfall. The country has banned Irrigation in the northwest and southeast parts of the country, leading to lower agricultural output. Corn production will be 18.5 percent lower than last year as the irrigation ban has hit corn-producing regions including Alsace particularly hard. Corn yields are also expected to be lower than in 2021 in Bulgaria, France, Hungary, and Romania.
European governments are facing extenuating circumstances and are desperate for additional income, which is evident in France from this new method to recover tax revenue. France however may have to hope that Google and Capgemini can improve the artificial intelligence in order to properly identify undeclared home decisions if water shortages continue next year and pools are not allowed to be filled. It is unlikely that French taxpayers will willingly pay 200 euros for an empty pool if they are banned from filling them.
