French Prime Minister Pledges EUR3.5 Billion In Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

05 September 2005

French Prime Minster Dominique de Villepin has proposed a major overhaul of France's tax system and a resumption of income tax cuts in an attempt to revive the economy and boost the government's flagging popularity ratings.

Marking his first three months in office, Mr de Villepin last Thursday announced the second stage of his economic recovery plan, central to which is reform of the country's tax system.

The proposals aim to simplify the income tax system with the number of personal tax brackets reduced to four from seven. From next year, there will be tax cuts of up to 3.5 billion euros ($4.4 billion) with a single taxpayer earning 30,000 euros paying 15% less. However, President Jacques Chirac is now very unlikely to meet his electoral pledge to cut income tax by one third by 2007.

Financial incentives will be given to encourage job seekers and to move more people off state benefits and into work, while the number of deductions would be eliminated to help finance the reductions. In addition, several million low-income households would receive a 75-euro ($91.49) payment to help them meet surging energy bills as crude oil continues to trade at near record highs.

"The reduction in income taxes will resume on 2006 revenues as part of a major fiscal reform which our country needs for a better recognition of labour, for economic competitiveness and for purchasing power," Villepin told a news conference.

Despite the hefty price tag attached to the tax cuts, Villepin has pledged to honour the EU's budget deficit limit, which is set at 3% of GDP, and which France has breached in successive years since 2002.

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