De Villepin Announces EUR7bn In French Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

29 September 2006

A surge in tax revenues coupled with a reduction in the French government's fiscal deficit has allowed Prime Minister Dominique de Villepin to shower businesses and individuals with tax cuts going into next year's general election.

Unveiling the government's budget for 2007, Villepin pledged more than EUR7 billion in tax cuts and rebates and promised that the deficit, at 2.7% of gross domestic product, would be at its lowest level for six years and well within parameters set by the European Union.

A major part of the tax package will be a reduction in the number of tax brackets to four from seven, while the government will also set a 60% ceiling for the total tax take on an individual, helping indirectly to curb the wealth tax. In total, French households can expect almost EUR6 billion in tax relief through various measures aimed towards putting more money into the taxpayer's pocket and boosting consumer spending.

The Prime Minister also plans to reduce company costs by EUR1.1 billion, and has already announced that payroll taxes for workers earning the minimum wage at small companies will be eliminated next year, in an effort to reduce the constraints that hinder job creation.

Villepin's proposal targets firms employing fewer than twenty workers, and those receiving the minimum wage will be exempted from payroll tax from July 1, 2007. The tax on the minimum wage is currently 2.1% of gross salary.

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