French Assembly Adopts 2011 Budget Bill

by Ulrika Lomas, Tax-News.com, Brussels

22 November 2010

The French National Assembly has adopted during a first reading the government’s 2011 finance bill, providing for a historic reduction of the country’s deficit of EUR60bn, and for a reduction of existing tax breaks in France of almost EUR10bn.

Although the text was adopted by a large majority (169 votes to 68), the outcome does not reflect the tension that arose and the anger that was provoked when French Budget Minister François Baroin insisted upon a second deliberation of 39 of the amendments that had been adopted in public session, very much against his wishes. According to Baroin, the amendments concerned compromised the government’s overarching aim of reducing the deficit.

Among the key fiscal measures contained in the bill and adopted by the National Assembly include plans to abolish the tax break currently accorded to newly-weds and to divorcing couples in France and to introduce a solidarity contribution (une contribution solidarité vieillesse) to finance pension reform in France by increasing the top rate of income tax by 1%, from 40% to 41%. Other measures contained in the bill include plans to increase the rate of value-added tax (VAT) levied on “triple play” offers (Internet, telephone and television services) from 5.5% to 19.6%, and to reduce from 50% to 25% the tax credit available for investment in solar powered equipment (solar panels).

Despite fierce government opposition, the National Assembly also voted to adopt a measure limiting the amount granted for both golden handshakes and for enhanced pensions, as well as a provision reducing from 75% to 50% the reduction in wealth tax (l’impôt de solidarité sur la fortune – ISF) benefiting those investing in small- and medium-sized companies.

The budget aims to reduce the public deficit to 6% of gross domestic product (GDP) next year, from a record level of 7.7% this year, and is based on expected growth of 2% in 2011, compared to 1.5% this year. The government intends to achieve its 3% deficit target by the end of 2013.

The Senate has now begun examination of the bill.

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