France signals tax cuts shift in boost to business
By Richard Lein, AFPPARIS -- France's Socialist government is hinting it may appease discontent at tax rises by putting more stress on spending cuts in its fight to control the budget and boost growth.
September 2, 2013, 11:56 am TWN
The latest signs came with a new reform of the pension system, which was headed for a huge deficit by 2020, that raises charges for business and workers but has been widely criticized as a weak compromise.
The country has just emerged from recession. But analysts warn that this could be mainly because of heavy household spending on energy during a long winter, and business leaders are warning that the burden of taxes is becoming counter-productive.
Leading figures on the left have begun responding to this, and on Friday President Francois Hollande said “the time has come” to take a “tax pause” after one of his ministers warned of growing “tax discontent.”
France has so far relied on tax hikes for about two-thirds of its fiscal adjustment. Most famously it hiked the tax rate to 75 percent on income above 1 million euros.
The reliance on tax hikes has also prompted warnings from the IMF and European Commission that it should focus more on cutting spending in order to avoid snuffing out the recovery.
Hollande told the daily Le Monde that for businesses his administration is “committed to not increasing labor costs and amputating their margins.”
And Finance Minister Pierre Moscovici assured that some of the latest charges put on companies would be matched by other cuts in charges next year.
The president said “we're not going to take away with one hand what we've given them with the other by the tax credit.”
The 20-billion-euro tax credit is one of the key initiatives of Hollande's administration to improve competitiveness.
France's social welfare system is funded primarily by charges on labor, burdening businesses.
The previous conservative government under Nicholas Sarkozy shied away from taking a politically unpopular step of shifting part of the financing to the sales tax.