French President Unveils Social Aid Package

by Ulrika Lomas, Tax-News.com, Brussels

20 February 2009

Following a summit meeting held at the Élysée palace earlier this week, attended by leading union and management groups, French President Nicolas Sarkozy has unveiled measures designed to combat the growing economic and social crisis currently gripping the country. Worth in the region of EUR2.6bn – far greater than originally proposed – the social aid package includes key tax initiatives specifically intended to support the middle classes.

At the heart of the President’s social aid package lies a welcome reduction in income tax. For taxpayers in the first tax band, between EUR5,852 and EUR11,673, the remaining two payments of 2008 income tax, due this year, will be waived. A tax credit system will also operate for any household whose income puts them marginally above this tax band. Due to benefit six million individuals, and with an estimated cost to the state of around EUR1.1bn, the measure represents an average gain per household of EUR200.

However, the effect of the initiative varies dramatically according to the circumstances and composition of each household, with those on the lowest incomes receiving hardly any benefit and families somewhat higher up the ladder saving between half and two-thirds of their tax bill.

Other measures contained in the social aid package include:

• A one-off bonus payment of EUR150 to families currently entitled to a back-to-school allowance.
• A payment of EUR200 for needy households.
• An increase in the amount of compensation granted to employees required to undertake reduced working hours as a result of the crisis – up to 75% of gross salary.
• A possible adjustment of repayment dates for property loans, accorded by banks to employees forced to assume reduced working hours.
• A lump sum bonus for vulnerable employees unable to claim unemployment benefit. For the next twelve months, a one-off bonus payment of EUR500 will be paid to those individuals made redundant from April 1, 2009, and having worked between two and four months.
• Managers of companies experiencing financial difficulties, resulting in short-time working hours or redundancies, are encouraged to give up their bonus payments.
• Creation of a social investment fund for two years (2009-2010) of between EUR2.5bn and EUR3bn, designed to coordinate efforts to support employment and professional training, financed by the state, and union and management groups.
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