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French Government Presents Tax Cut Package

by Ulrika Lomas,, Brussels

12 July 2007

French Finance Minister Christine Lagarde has presented an EUR13.6 billion package of tax cuts to the national assembly, measures which President Nicolas Sarkozy says will help spark an economic "shock" and get the economy growing.

The measures, which will cost up to EUR11 billion in 2008 alone, include the removal of taxes on overtime, reducing taxes on inheritances, capping income tax at 50% and the introduction of tax deductibility on some mortgages. Sarkozy's new government also wants to make the labour market more flexible, and the centrepiece of these reforms could see the scrapping of the 35 hour week.

The package places much emphasis on reducing taxes on the wealthy, a measure sure to spark debate that the government is putting the interests of the rich before looking after its more vulnerable citizens. Lagarde however, argued that such measures are vital if France is to be a place of wealth creation.

"All you have to do is go to Gare du Nord on Friday night to Eurostar and Thalys arrivals to understand that these French bankers, who have gone to work in the City, those tax exiles in Belgium, want one thing, to come back to France," she told lawmakers.

Lagarde predicted that if approved, the measures would add an extra 0.5% to French GDP in 2008.

However, it remains unclear from the government's plans whether some or all of the cost of the tax cuts will be recouped with tax increases or spending cuts elsewhere. The proposals could also raise eyebrows in Brussels with the European Commission and national finance ministers expressing concern over the French budget deficit, which Sarkozy estimates will touch 2.4% of GDP this year.

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