Sarkozy Finds Room In French Budget For Company Tax Breaks

by Ulrika Lomas, Tax-News.com, Brussels

24 September 2004

While the thrust of French Finance Minister Nicolas Sarkozy’s budget was directed towards dragging the French fiscal deficit below European Union limits, the man widely tipped to become the next President also found room for some small personal and corporate tax breaks.

In one of the more high profile of the tax incentives, Sarkozy has set aside some €1 billion for manufacturers who commit to preserving jobs in France and who set up in one of the 20 designated ‘competitiveness zones’ to stimulate economic activity in France’s more deprived areas.

More tax relief for companies will come in the form of a one year tax holiday from the 3% surtax on profits and the extension of tax relief on new investments.

This is partly to compensate for the freeze on payroll tax reductions and a planned minimum wage increase in 2005. This measure is expected to cost the government an additional €1 billion.

Sarkozy has also allowed room in the budget for an easing of inheritance tax and relief for first time home buyers.

However, for Sarkozy, the main achievement of his budget is a reduction in the government’s forecast budget deficit to 2.9% of gross domestic product in 2005. This should placate the European Union, which has set a 3% limit on government deficits to ensure the stability of the euro.

Nevertheless, this has come at the price of a one year freeze on the government’s broader programme of income tax cuts.

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