France Definitively Adopts 2012 Austerity Budget

by Ulrika Lomas, Tax-News.com, Brussels

27 December 2011

The French National Assembly (lower house) has adopted during a final, definitive reading the country’s 2012 finance bill, which it passed on December 15, and which was subsequently rejected by the French Senate during its sitting on December 20.

The law, which provides for a return of the deficit to 4.5% of gross domestic product (GDP) in 2012 and then to 3% in 2013, incorporates the fiscal measures announced by French Prime Minister François Fillon on August 24.

According to the French finance ministry, the reduction of the budgetary deficit is based on control of public spending and on a reduction of tax breaks in France.

Containing a raft of targeted tax rises and cuts in public spending, the 2012 budget bill provides notably for a 3% tax on top earners in France with income in excess of EUR500,000 (USD652,425) or EUR1m for a couple, for a tax on drinks containing added sugar and artificial sweeteners, for a dissuasive tax on abusive rent, as well as for the abolition of the Scellier initiative, a provision granting tax relief to investors in new accommodation destined for rent, and for a re-centring of the zero rate loan measure PTZ+.

The budget also provides crucially for a 15% general cut in existing tax breaks in France, rather than 10% as initially planned. In addition, individual entitlement to tax breaks will be capped at a global sum of EUR18,000 or 4% of taxable income for tax on 2013 income.

Defending next year’s budget, French Budget Minister Valérie Pécresse underlined that it was a “serious” and responsive budget at a time of great uncertainty, reiterating that the text is designed to enable the government to meet its ambitious deficit reduction targets, to support growth, to strengthen competitiveness, and also to preserve fairness.

Jérôme Chartier of the Union for a Popular Movement (UMP) party underscored “the courage” of a budget containing “unpopular” although “responsible” measures.

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