France's Lagarde Rules Out Abolition Of Tax Shield

by Ulrika Lomas, Tax-News.com, Brussels

03 July 2009

French Minister for the Economy Christine Lagarde has firmly ruled out a proposal to abolish France’s highly controversial tax shield or “bouclier fiscal” in order to reduce public debt.

Abolition of France’s “most unjust” tax shield was just one of several proposals put forward recently by François Chérèque, leader of France's largest trade union confederation, the CFDT, as a means to reduce the current deficit.

Other ideas advocated by Chérèque include creating an additional tax bracket for top earners, abolishing measures granting cuts in contributions, and introducing a tax on overtime hours.

Despite rejecting the idea of abolishing the tax shield, Minister for the Economy Lagarde did confirm that Chérèque’s ideas pertaining to the use of a future government loan – an investment loan recently promised by French President Nicolas Sarkozy – were “interesting”.

According to CFDT leader Chérèque, the government’s investment loan should be used to address two key issues: sustainable development and an aging population. Other key areas for investment, outlined by Chérèque, include environmentally-friendly industries, renewable energy, transport, health and equipment.

For the French Minister, however, the government’s first priority lies in identifying target sectors in which to invest. Subsequently, areas requiring financial support must then be identified before finally determining the means of financing the loan, the Minister added.

France’s controversial tax shield limits direct taxes in France (income tax, wealth tax, and local taxes such as dwelling and real estate tax) to 50% of income, including social contributions, honouring a pre-election pledge made by President Sarkozy, that no-one will pay the tax authorities any more than half of what they earn.

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