France's Income Tax Cuts In The Balance

by Ulrika Lomas, Tax-News.com, Brussels

28 August 2002

Before recent elections which swept Jacques Chirac back to power as France's President, he promised income tax cuts of 30% over 5 years; but the government also committed France at the EU's Barcelona summit in March to bringing its budget deficit close to balance by 2004.

It is widely believed that these two conflicting goals are both achievable only if economic growth exceeds 3% a year; indeed, at a special EU finance ministers' meeting in Madrid in June, France was allowed say that if growth failed to reach 3% in both 2003 and 2004, then it would be released from its budget commitment.

The government felt it had to go ahead with a first instalment of the promised tax cuts, but now Jean-Pierre Raffarin, the French prime minister, is questioning whether the 3% per cent economic growth target is possible for next year.

Private-sector economists forecasts are in the 2.4% to 2.7% range, while the IMF recently reduced its forecast to 2.6%. Current forecasts have the budgetary deficit reaching 2.6% of GDP or higher.

Recommended