Chapter 465: Taxes and Governance
"Low return on investment?" Joseph frowned slightly. Does this mean they're not making money? How can industrial ventures in the late 18th century, especially with advanced ideas like mine, not be profitable?!
Mirabeau nodded helplessly. "Yes, Your Highness, that's indeed the case."
With his help, Joseph found the section of the report that detailed the return on investment for various industries. A quick glance showed that most industries had a return rate between 6% and 10%.
In the 21st century, such figures would be impressive, but for this era, they were shockingly low.
Currently, the basic interest rate for bank deposits was 6.2%—and that was after a recent reduction due to the fiscal crisis. Before that, it had been over 7%.
If someone chose to lend money, they could easily earn 10% interest.
In such circumstances, who would want to invest in industry?
When Joseph saw that even the steel industry had a profit margin of just 7.9%, his face darkened. He looked at Mirabeau and asked, "Our iron industry is already using hot blast technology extensively; the profit margin should be over 20%. Where is the problem?"
In the past few months, Joseph had been busy with the war in Silesia and had somewhat neglected domestic affairs. He had assumed that with various new technologies and standardized production models, those factories should be making a lot of money. But it turned out their profits were just barely outpacing bank deposits.
Mirabeau, looking slightly embarrassed, rubbed his hands together. "Your Highness, if the products are sold locally, the profit margin does reach 20%. But when transported to Paris or Bordeaux, the profit falls to under 7%."
Bailli, standing by, added, "Since the signing of the Rhine-Seine Treaty, the profit margin for our iron goods sold in the German territories is close to 10%."
Joseph instinctively asked, "Why is this…?"
Before they could answer, he realized the issue himself. "Is it because of local tariffs between provinces?"
"Yes, Your Highness," Mirabeau replied with a bitter smile, nodding. "And the tolls on the roads, which also eat into the profits."
Bailli continued, "Some provinces even see products from other areas as an opportunity to make money. Last month, I saw it myself in Toulouse—a tax collector imposed a sales tax on a cartload of cloth based on its value. Then, at the next checkpoint, they were stopped again and charged another sales tax based on the vehicle size. Yes, adding one word makes it a different tax, authorized by the Toulouse High Court."
When it came to unreasonable taxes and other such matters, Mirabeau, representing the capitalist nobility, couldn't help but vent his frustrations.
Joseph soon found himself frowning deeply.
As France's industry began to flourish, tax farmers and local governments were finding every possible way to squeeze the last drop of money from the factories.
For example, in Lyon, France's textile hub, the local government had decreed that all fabric leaving the factory had to meet specific length and width requirements before it could be transported for sale. If not, the fabric faced fines or even public burning.
Tax collectors prowled around the factories daily, holding the tax code in hand, eagerly looking for any opportunity to levy taxes, making life miserable for the factories.
Joseph knew that they hadn't even mentioned the issue of corruption among officials. Many of France's officials had purchased their positions, and these individuals were eager to recoup their "investment" through corruption.
Although the establishment of the Bureau of Public Integrity had somewhat curbed this, Bureau Chief Marat had limited capacity, and subtle forms of extortion by officials were difficult to detect.
Joseph rubbed his temples in fatigue. He had previously focused his efforts on promoting technological and managerial advancements to boost factory competitiveness but had neglected the business environment.
One reason Britain had become the world's leading industrial power was not only because of its vast colonies supplying raw materials and serving as markets but also because it offered the best business environment for factories in all of Europe.
Britain had abolished internal tariffs decades earlier, and its tax system had undergone several reforms, making it transparent and fair.
As for government officials, while British officials were not immune to corruption—it was impossible to avoid entirely in the 18th century—they were among the least corrupt in Europe.
These factors had greatly promoted Britain's industrial development. In comparison, France was still using a feudal-era system of officials and tax laws to manage a nation that was stepping into the industrial age.
If left unchecked, France's industry, even with advanced technology and ideas, could be brought to its knees by tax farmers and corrupt officials.
Joseph sighed. "It seems we need to implement tax reform soon."
He silently added in his mind: And civil service reform too.
Mirabeau and Bailli exchanged a glance before cautiously saying, "Your Highness, if I may be frank, even if we pass some laws to regulate taxation, those tax farmers will always find a way around them."
"You're absolutely right," Joseph nodded, his tone serious. "Which is why our target will be the Tax Farmers' General Assembly!"
The Tax Farmers' General Assembly was the self-governing body of all tax farmers in France.
At present, France's tax system worked roughly like this: At the beginning of each year, the General Assembly negotiated with the Minister of Finance to set the amount of tax for that year or for multiple years, and an agreement was signed.
The tax farmers then paid a lump sum directly to the French government, giving them the right to collect taxes in specific regions. Any taxes they collected beyond the lump sum were theirs to keep.
In essence, the French government only enacted tax laws and did not involve itself in actual tax collection.
The tax farmers maintained tax collection teams, engaging in various forms of extortion and double taxation, causing widespread resentment among the populace. Though tax revenues were high, the French government only received a fixed sum, leaving its finances strained.
Mirabeau's eyes lit up with excitement, but he quickly became cautious. "Your Highness, our current financial situation… might not withstand the shock."
He wasn't wrong.
Currently, the bulk of France's revenue came from the tax farmers' lump sum payments, collected at the beginning of the year—sometimes even for multiple years at once.
If the tax farming system were altered, France would face an empty treasury at the start of the year.
Though the government could collect taxes afterward, it would take several months before any significant revenue came in. How would the government manage its expenses in the meantime?
(End of Chapter)
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