EUR25bn In French Tax Breaks May Go

by Ulrika Lomas, Tax-News.com, Brussels

08 September 2010

The Attali commission, re-launched in February at the behest of French President Nicolas Sarkozy, and tasked once again with reflecting on ways in which to boost growth in France, has finally united on a series of recommendations designed to support the public finances, including a proposal to cut tax breaks by EUR25bn over the course of the next three years. President Sarkozy had recently unveiled plans to abolish around EUR10bn in tax shelters in the autumn.

According to the commission, the priority for the government now should be to regain control of the public finances, which constitute the foundations of growth and solidarity.

In its report, due to be presented to the President shortly, the commission will urge the government to save in the region of EUR75bn in order to reduce the country’s deficit to 3% of gross domestic product (GDP) by 2013, provided that a stable growth rate of 2% is achieved between 2011 and 2013. Of this sum, EUR50bn could be derived from cuts in spending, the commission suggests, while the remainder could be generated by corresponding cuts in tax shelters. Rather than recommending the introduction of new taxes or an increase in tax rates, the commission has instead advocated a widening of the base of fiscal and social contributions.

The commission will propose that the government targets specific tax breaks, such as those applying to income from savings, to housing, and any tax shelters that are not environmentally friendly, such as exemption from the national tax on petroleum products (la taxe intérieure de consommation sur les produits pétroliers – TIPP).

As regards the highly controversial tax shield (le bouclier fiscal), which has been fiercely criticized for limiting the effects of any tax increases on the country’s top earners, the commission will emphasize that the contribution from France’s wealthiest individuals to the national economy should not be diminished by the mechanism. Back in July, however, President Sarkozy strongly reaffirmed his commitment to the tax shield, referring to it as a guarantee of a competitive and attractive France.

The commission will also warn that failure to achieve average growth of 2%, will result in the need for further exceptional efforts to achieve the target deficit of 3%, including targeted tax rises as well as an acceleration of structural reforms.

In the medium-term, the commission has called for a reform of the country’s tax system to reduce labour costs, to be offset by an increase in environmental taxation and taxation on consumption.

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