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The French National Assembly has definitively adopted during a new reading the government’s 2012 supplementary finance bill, a text which had previously been rejected by the Senate, and providing notably for a rise in the standard rate of value-added tax (VAT) and for the introduction of a financial transactions tax in France.
The “collective” budget includes the key fiscal measures announced by French President Nicolas Sarkozy on January 29.
During the final reading, the Union for a Popular Movement (UMP) and New Centre (NC) parties voted in favour of the text, while the left-wing opposition, fiercely opposed to the provisions, voted against.
To reduce labour costs and increase competitiveness, the text provides for the abolition of employers’ social contributions from October 1, amounting to around EUR13.6bn (USD18.1bn). The measure is compensated by a provision increasing the 19.6% rate of VAT by 1.6% to 21.2%.
Prefiguring the introduction of a mechanism at European level, the text provides for the introduction of a financial transactions tax in France from August 1. In accordance with the provisions, a 0.1% tax is to be imposed on transactions in French securities where stock market capitalization exceeds EUR1bn, and for a 0.01% tax to be levied on credit default swaps and on speculative “automated" trading. The purchase of certain shares under the employee savings scheme will, however, remain exempt from the tax.
The collective bill strengthens existing sanctions against tax fraud as it provides for three “emblematic” measures, notably the creation of a fine proportional to 5% of undeclared financial assets held abroad, for an increase in fines in the case of tax fraud, and for the creation of specific penal sanctions in cases involving fraud in so-called “tax havens”, or jurisdictions deemed to be uncooperative in tax matters.
The text also reduces the growth forecast for 2012 from 1% to 0.5% and provides for a payment of EUR6.5bn to the future European Stability Mechanism (ESM), due to replace the existing European Financial Stability Facility (EFSF) fund in July.
Defending the budget, and in particular the government’s VAT plans, French Budget Minister Valérie Pécresse insisted that the reform was “neither an anti-deficit measure nor a rise in taxes”, and argued that there was no reason for prices to increase in France as a result.
The supplementary finance bill will enable the government’s revised forecast for growth in 2012, which has been lowered by 0.5%, to be “entirely absorbed” without recourse to an additional budget package, the minister added.
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