Baroin Hints At Further Tax Hikes In France

by Ulrika Lomas, Tax-News.com, Brussels

03 September 2010

Given the country’s colossal deficit and the temporary nature of the government’s plans to cut EUR10bn in tax breaks, French Budget Minister François Baroin has reportedly indicated to parliamentarians that an increase in taxation may prove necessary following the presidential elections in 2012.

Indeed, Baroin has recently revealed that in a bid to finance the country’s social debt, the government is now seeking to generate additional fiscal revenues from 2013, either by introducing further cuts in tax breaks or by progressively increasing the CRDS contribution (la contribution au remboursement de la dette sociale), a tax created specifically in order to absorb the country’s social security debt.

Vehemently opposed to any general increase in taxation, the government has, up until now, categorically rejected the idea of raising this contribution, preferring instead to press ahead with plans to pare down existing tax breaks, which this year alone represent a shortfall for the public finances of an estimated EUR115bn. French President Nicolas Sarkozy recently unveiled plans to abolish EUR10bn in tax breaks (les niches fiscales et sociales) in the autumn as part of plans designed to reduce the country’s budget deficit to 6% of gross domestic product (GDP) in 2011 (from 8% this year).

The government has already confirmed plans to cut tax breaks currently benefiting the country’s insurance sector by around EUR3bn. Baroin has warned that the proposed increase in taxation must not be passed on to customers, emphasizing the capacity of both mutual and insurance companies in France to “absorb this effort”.

The French finance ministry has, however, acknowledged the need to supplement the measures already announced by the government with additional initiatives. Baroin, for example, has admitted that two of the three measures targeting the insurance sector are only temporary. The special tax imposed on insurers will only be levied once, while the annual collection of social levies imposed on certain life insurance contracts will generate additional revenues much later.

The 2011 finance bill is due to be presented to the council of ministers before the end of the month.

Recommended