Lagarde Defends French Tax Shield

by Ulrika Lomas, Tax-News.com, Brussels

07 April 2010

Defending the country’s – increasingly – unpopular tax shield or 'bouclier fiscal', French Finance Minister Christine Lagarde has recently emphasized that the measure will be a key factor in France's return to growth.

According to the French Finance Minister, employment is vital to the country’s economy, and, in order to create employment, investment is needed, and for investment there needs to be capital. Given that investors, whether foreign or national, demand stability and predictability from the country’s tax system, the system must not now be destabilized she warned, nor should taxes be raised.

Lagarde also emphasized that, although the measure is thought to cost the government an estimated EUR586m per year, the fact that some taxpayers pay 50% of their income to the state is “not bad”.

The French Finance Minister also pointed out that the tax shield serves not just to benefit the wealthiest individuals in France, but also helps a large number of low-income earners. Indeed, according to Lagarde, as much as 60% of beneficiaries are in fact low-income earners.

The president of the parliamentary Union for a Popular Movement (UMP) group, Jean-François Copé, has also recently endeavoured to defuse the growing conflict between the French President Nicolas Sarkozy and his majority UMP party, regarding the issue at the heart of the tax shield debate: a possible increase in taxation.

Echoing views expressed by the French President, Copé has insisted that it is not a matter of modifying the actual characteristics of the tax shield, a mechanism that currently guarantees that no taxpayer in France pays more than 50% of their income in tax (including the general social contribution, CSG, and the social debt repayment contribution, CRDS). According to Copé, the threshold must not be altered and both social contributions should remain included in the shield.

Copé believes, however, that the tax shield could be “neutralized” as a temporary and exceptional measure, meaning that a possible rise in taxation or general social contribution would not be included in the tax shield.

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