France Makes Tax Top Priority

by Ulrika Lomas, Tax-News.com, Brussels

17 November 2010

French Budget Minister and government spokesmen François Baroin has confirmed that taxation will be the top priority for the government for the remaining 18 months of President Sarkozy’s term in office.

Baroin reiterated that the government is currently working towards fiscal convergence with Germany, and emphasized that it also plans to initiate a broad examiniation on taxation in general, with a dual objective: firstly, to ensure that fiscal reform is seen by all to be fair, and secondly, to ensure that it serves as a tool to benefit economic development in France. The work that lies ahead of us is the creation of employment and investment, the minister explained.

Regarding the issue of possible tax rises, Budget Minister Baroin categorically ruled out any increase in either corporate tax or income tax, and provided his assurances that neither value-added tax (VAT) nor social contributions (CSG and CRDS) would rise. According to Baroin, all of the discussions that have taken place in the French National Assembly on the subject have clearly demonstrated that the government’s line is not to touch taxes.

Reappointed to their posts on November 14 following a government reshuffle, French Finance Minister Christine Lagarde and Budget Minister Baroin now face the unenviable uphill challenge of reforming taxation in France in the coming months. A working group appointed by the court of auditors is due to present its report on the French and German tax systems in the first quarter of next year, and concrete measures for fiscal reform are due to be presented in a supplementary finance law in June.

Determined to close a bitter chapter on the controversial tax shield mechanism, ahead of the presidential elections in 2012, President Sarkozy pledged to reform taxation back in October. The tax shield (bouclier fiscal) currently limits direct taxes in France to 50% of income and is viewed very much as a symbol of injustice, particularly given the huge efforts demanded from all to redress the country’s public finances. In 2009, a total of EUR679m was reimbursed to almost 19,000 taxpayers as a result of the mechanism.

Pressure has also mounted from within the President’s own majority party over the last few months to abolish both the tax shield and wealth tax.

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