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France Lawmakers Wave Through Contested Budget

by Ulrika Lomas,, Brussels

26 December 2012

The French parliament has definitively adopted the Socialist government’s 2013 finance bill (PLF), following a final reading in the National Assembly.

The Socialist, radical left, and ecologist parties voted in favour of the budget, while the Left Front abstained, and the Union for a Popular Movement (UMP) and centre UDI parties voted against.

Rejected at the beginning of December by the French Senate, the government’s 2013 finance bill provides for EUR10bn (USD12.9bn) in expenditure savings, for EUR10bn in additional taxes on large corporations in France, and for a EUR10bn contribution from households, notably the country’s wealthiest.

Among the key fiscal measures provided for in the 2013 PLF are plans to re-value the “décote” amount, the credit mechanism ensuring that the most modest households in France, whose actual income has not increased, remain exempt from taxation following the non-indexation of the individual income tax scale next year.

The text also creates a “supplementary” marginal income tax rate of 45% levied on income in excess of EUR150,000, and imposes an “exceptional solidarity contribution” of 75% on income from professional activity in excess of EUR1m.

The government plans to align the taxation of income from capital with the taxation of income from work, with the exception of entrepreneurs who will continue to benefit from the 19% flat tax rate for the sale of a company, to reform wealth tax, and to extend until 2015 the exceptional contribution on corporate taxation.

Based on an optimistic growth forecast of 0.8%, the Socialist government’s 2013 budget aims to reduce the country’s public deficit from 4.5% of gross domestic product in 2012 to 3% in 2013.

Following the adoption of the PLF, the UMP party submitted two appeals to the country’s constitutional court: the first pertaining to the 2013 budget, the second opposing the 2012 year-end supplementary budget, also recently definitively adopted by lawmakers in the National Assembly.

The UMP argues that several measures contained in the budgets are a clear violation of the right to ownership and the principle of tax equality. The party has challenged notably the proposed 75% rate of tax on income in excess of EUR1m and the planned mechanism for calculating the new cap on taxation, fixed at 75% of income from 2013. The party points out that certain latent income, not actually collected by the taxpayer, is taken into account for calculations, meaning that a household could be taxed at over 100% of its actual revenue.

The constitutional court is due to return its verdict on the appeals shortly.

TAGS: court | tax | law | entrepreneurs | budget | corporation tax | tax rates | France | tax reform | individual income tax

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