Chirac Sees Little Room For Further Income Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

18 July 2005

President Jacques Chirac has assured the French nation that the government remains committed to tax cuts, although he admitted that there is little budgetary room for expansive cuts in taxation.

"I still wish to pursue tax cuts," Chirac stated in a television interview marking the Bastille Day public holiday. However, he qualified his remark by saying that France "will have to adapt to the means at our disposal".

Nonetheless, he described tax cuts as a "necessity" after reaching what were widely considered to be "excessive" levels.

France's high rates of taxation have been cited by the International Monetary Fund as one of the primary obstacles to economic growth. In its annual assessment of the economy last year, the IMF noted that "a high tax burden and low employment rates, together with a large deficit, and an impending demographic shock cast a shadow over long-term growth prospects."

The IMF proposed a series of remedial reforms including “a steadfast reduction in public spending to eliminate budget deficits and make room for growth-enhancing tax cuts, and an acceleration of product market reforms to increase competition".

However, hemmed in by a growing budget deficit and a slack economy, Chirac was last year forced to suspend the programme of tax cuts, which according to his electoral pledge in 2002 was designed to reduce the burden of income tax by 30%. Since making this pledge, Chirac has overseen a 10% reduction of the income tax burden.

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