French Budget Seeks To Improve Competitiveness

by Ulrika Lomas, Tax-News.com, Brussels

03 October 2008

Announcing the 2009 budget, the French Budget Minister, Eric Woerth emphasised the difficult economic context in which the budget had been drawn up and unveiled the government’s reforms and tax measures intended to redress the state of public finance and get the country back on track.

At the heart of the 2009 budget are key tax initiatives designed to stimulate investment and reduce the country’s tax deficit. The proposed targets are aimed at:

• Improving the competitiveness of the economy: the government is continuing its effort to lower burdens on businesses, with the abolition in three years of the fixed annual tax.
• Improving the fairness of the tax system: the government proposes restrictions on measures allowing taxpayers to reduce their income tax by an unlimited amount.

With regard to improving fairness, the latest measures pertain to the Malraux law of 1962. This law enables buyers seeking to restore buildings in a safeguarded sector or an area of architectural heritage protection, urban and landscape (ZPPAUP) to deduct the whole cost of work undertaken from their land revenue. In order to tighten the framework, capping will be imposed. This would be 100% of work up to a limit of EUR140,000 for property in a safeguarded sector and 75% up to a limit of EUR100,000 for property in a ZPPAUP zone. These measures do not include imposing a limit on work carried out by the owners of historical monuments.

Restrictions will also now apply to reductions in tax for overseas investments, with a ceiling introduced of EUR40,000 or 15% of revenue. In addition, the system of renting furnished professional flats will be reserved for true professionals and limited to EUR23,000 of receipts and 50% of revenue derived by professional activity.

The budget contained proposals to increase France’s projected budget deficit to EUR49bn in 2008 and to EUR52bn for 2009, although a return to budget balance by 2012 was not ruled out.

Despite initial aims to reduce the deficit to 2%, the deficit-to-GDP ratio would be 2.7% in both 2008 and 2009, with economic growth anticipated at around 1% for this year and next (previously forecast at 2.5%). However, some analysts consider this to be inaccurate, fearing that France’s budget deficit might even breach the 3% deficit/GDP ceiling imposed by Brussels.

Recommended