Mer Defends French Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

18 September 2003

The French Finance Minister Francis Mer has defended his government's policy of pursuing tax cuts in order to spur economic growth, despite the fact that they come at the expense of a growing budget deficit and the EU euro stability pact.

In a televised debate screened earlier this week, Mer said that Prime Minister Jean-Pierre Raffarin's recent announcement that a further 3% will be knocked off income tax next year signalled that "we have a conviction and put it into policy." The 2004 income tax cuts will follow reductions of 5% in 2001 and 1% in 2002. Consequently, France's budget deficit is projected to reach 4% of GDP by the year's end.

Mer compared the French policy to that of the United States and Japan, which, he explained "didn't hesitate to go into deficit policies," in order to fund growth boosting tax cuts. However, he recently expressed somewhat contradictory sentiments regarding the sanctity of the Growth and Stability Pact, which Budget Minister Alain Lambert let slip recently will likely be broken by France at least until 2006. Mer told fellow finance ministers at the recent Stresa meeting that France remained committed to the pact, adding it was the nation's "duty" to stay within the rules.

Mer's comments echo Raffarin's. The Prime Minister assured Brussels that the French government was "entirely committed" to the stability pact, shortly before announcing the income tax cuts.

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