Taxation and officialdom

Low return on investment?

Joseph frowned slightly. So this meant it wasn't making money? Developing industry in the late 18th century, and with all those advanced ideas, how could it not be profitable?!

Mirabeau said helplessly, "That's indeed the case, Your Highness."

With his help, Joseph found the data on the return on investment for various industries in the report. A quick glance revealed that the returns for most industries were between 6% and 10%.

This number would be considered very impressive in the 21st century, but right now it's shockingly low.

It's important to know that the current base rate for bank deposits is 6.2%, and that's after it was lowered last year when the Financial Crisis eased slightly; before that, it was even above 7%.

However, if you take the money out to lend, it's easy to get 10% interest.

In this situation, who would be willing to invest money in industry?

When Joseph saw that the profit margin of the Steel Industry was only 7.9%, his face immediately darkened. He looked up at Mirabeau and said, "Our Iron Smelting industry has already made extensive use of hot blast technology. The profit margin should definitely be over 20%. Where exactly is the problem?"

He had been busy with the Silesia war for the past few months and had indeed neglected domestic development. He had thought that with the various new technologies and Standardized Production Model, those factories should be making a fortune, but the profits were barely keeping up with bank deposits.

Mirabeau rubbed his hands awkwardly and said, "Your Highness, if we sell near the factory, the profit can indeed reach 20%, but if we ship them to places like Paris or Bordeaux, the profit will be less than 7%."

Bayei added, "However, after the signing of the Rhine-Seine River Treaty, we made close to 10% profit on iron products sold to the German Territories."

Upon hearing this, Joseph instinctively asked, "Why is that...?"

Before the two could answer, he realized what he meant. "Is it because of the local Tariff in each province?"

"Yes, Your Highness," Mirabeau nodded with a wry smile, "And the toll fees in various places are also eating into the profits of goods."

Bayei added, "Some provinces even saw goods brought in from other places as an opportunity to make a fortune."

"Just like what I witnessed in Toulouse last month—the tax collector collected sales tax on a truckload of cloth based on the value of the goods, then stopped the same truck again at the next intersection and collected another sales tax based on the size of the vehicle. Yes, add one word and it's two different taxes, passed by the Toulouse High Court."

When the topic turned to unreasonable taxes and other issues, Mirabeau, as a representative of the Capitalist Aristocrat, couldn't help but start complaining incessantly.

Joseph quickly frowned as he listened.

Currently, France industry is booming, so Tax Farmers and local governments are trying every means to squeeze the last drop of profit out of the factories.

For example, in Lyon, the Textile center of France, the local government stipulated that all fabrics leaving the factory must meet certain lengths and widths before they could be transported and sold; otherwise, they would face fines or even be publicly burned.

The Tax Farmers ' tax teams circled the factory every day, holding tax laws and regulations, desperately trying to find ways to collect taxes, causing the factory immense suffering.

Joseph knew that there was something else they hadn't mentioned: official corruption. Currently, a large number of officials in France have bought their positions, and these people are extremely corrupt in order to recoup their "costs."

Although the establishment of the Fair Investigation Bureau had a certain deterrent effect on officials, Marat's energy was limited. It was difficult to find out that officials used various means to make things difficult for factories and secretly demand benefits.

Joseph rubbed his temples wearily. He had focused all his energy on advancing technology and management to increase the factory's competitiveness, but he had neglected the issue of the business environment.

The reason why United Kingdom has become the world's leading industrial power is not only due to the vast sources of raw materials and sales markets brought by its Colony, but also because it has the best factory operating environment in all of Europe.

United Kingdom abolished domestic local Tariff decades ago, and its tax system has undergone several reforms, making it quite transparent and reasonable.

As for the integrity of officials, although United Kingdom officials were also corrupt—which was unavoidable in the 18th century—they were among the best in the world compared to other countries.

All of these factors greatly promoted United Kingdom's industrial development. In contrast, France was still using feudal bureaucracy and taxation systems to govern a country that was entering the industrial age.

If left unchecked, even with its own advanced technology and ideas, France industry could very well be crippled by its own Tax Farmers and officials...

Joseph sighed in relief, "It seems we need to implement Taxation reform as soon as possible."

He silently added in his mind: There's also the reform of the Officialdom.

Mirabeau and Bayei exchanged a glance, then cautiously said, "Your Highness, if I may be frank, even with laws regulating taxation, those Tax Farmers will always find ways to evade it..."

"You're absolutely right," Joseph nodded, and said in a deep voice, "Therefore, our target will be the Tax Farmers Guild!"

The Tax Farmers Guild is the autonomous body of all Tax Farmers in France.

Currently, the France tax system works roughly like this: at the beginning of each year, representatives of the Tax Farmers Guild negotiate with the Minister of Finance to determine the Tax Farming Income for one or more years, and then sign an agreement.

Afterwards, the Tax Farmers in various regions would pay a Tax Farming Income directly to the French Government according to the figures in the agreement, and then they could collect taxes in a certain area. All the taxes collected would belong to the Tax Farmers.

In other words, the French Government only issues Taxation laws, but does not participate in the actual collection of taxes.

Tax Farmers, on the other hand, maintained tax collection teams, engaging in various forms of extortion and double-collection, causing widespread public resentment and hatred towards Tax Farmers. Although the collected taxes were substantial, the French Government only received a fixed Tax Farming Income, leaving its Finance severely strained.

Mirabeau's eyes flashed with surprise upon hearing this, but he immediately became cautious and said, "Your Highness, our Finance situation... I'm afraid it will be difficult for us to withstand the impact this will have."

He was stating an objective fact.

Currently, the bulk of France's Finance revenue comes from Tax Farming Income. This money is collected from Tax Farmers at the beginning of each year, sometimes even for two or three years at a time.

If the Tax Farmer System is changed, the French Government will face a situation where the national treasury is empty at the beginning of the year.

Although the government can collect taxes later, that won't be for at least several months. What about the Finance expenditures during that time?