28 September 2012

Reuters: France targets deficit cut with tax-hiking budget

President François Hollande's Socialist government unveiled sharp tax hikes on business and the rich, in a 2013 budget aimed at showing that France has the fiscal rigour to remain at the core of the eurozone.

The package will recoup €30 billion for the public purse with a goal of narrowing the deficit to 3.0 per cent of national output next year from 4.5 per cent this year - France's toughest single belt-tightening in 30 years. But with record unemployment and a barrage of data pointing to economic stagnation, there are fears the deficit target will slip as France falls short of the modest 0.8 per cent economic growth rate on which it is banking for next year.

The budget will also disappoint pro-reform lobbyists by merely freezing France's high public spending rather than daring to attack ministerial budgets, as Spain did this week in a bid to avoid the conditions of an international bailout.

The government said the budget was the first in a series of steps to bring its deficit down to 0.3 per cent of GDP by 2017 - missing an earlier target of a zero deficit by then. Of the total €30 billion of savings, around €20 billion will come from tax increases on households and companies, with tax increases already approved this year to contribute some €4 billion to revenues in 2013. The freeze on spending will contribute around €10 billion.

To the dismay of business leaders who fear an exodus of top talent, the government confirmed a temporary 75 per cent super-tax rate for earnings over €1 million and a new 45 per cent band for revenues over €150,000. Together, those two measures will bring in around €0.5 billion. Higher tax rates on dividends and other investments, plus cuts to existing tax breaks, will bring in several billion more.

Business will be hit with measures including a cut in amount of loan interest which is tax-deductible and the cutting of an existing tax break on capital gains from certain share sales - moves worth around €4 billion and €2 billion each.

Full article

Projet de loi de programmation des finances publiques pour les années 2012 à 2017 et projet de loi de finances pour 2013

© Reuters