France Executes U-Turn Over Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

10 March 2003

Speaking on RTL Radio last week, French Finance Minister, Francis Mer revealed that the government will be freezing its tax cutting programme 'until economic growth returns'.

Following the announcement on Thursday that the country's budget deficit breached the EU Stability and Growth Pact ceiling last year and is set to do the same this year, coming in at 3.4%, EU Economic and Monetary Affairs Commissioner, Pedro Solbes revealed that he would be putting the EU's excessive deficit procedures into motion against France.

The French Finance Minister has softened his position slightly in the face of possible financial sanctions. However, France's breaching of the 3% of GDP ceiling in 2002 is seen as particularly unsatisfactory, given that other countries which have broken the rules, namely Germany and Portugal, did their best to balance their finances in the year following the breach.

Earlier this year, it was predicted that France would be the first to unashamedly flout the Pact's terms, and might even force a change in the agreement. Reporting in January, the Wall Street Journal suggested that:

'If it wants to hold its budget deficit within the limits laid down by the European Union's Stability and Growth Pact, it has to slash public spending and go slowly on promised tax cuts. But if it wants to retain its popularity at home, it needs to boost economic growth by maintaining public spending and delivering on those tax cuts.'

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