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French National Assembly Waves Through 2013 Budget

by Ulrika Lomas,, Brussels

23 November 2012

The French National Assembly has recently adopted by 317 votes to 217 the governments 2013 finance bill, providing 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 countrys wealthiest.

The Socialist, ecologist, and radical left parties voted in favor of the bill. The Left Front abstained during the vote, and the Union for a Popular Movement party and the Union of Democrats and Independents (UDI) opposed the text, warning that the budget is based on an over-optimistic forecast for growth of 0.8%.

While the UDI partys Charles de Courson insisted that the budget is both unbalanced and dangerous, maintaining that the text is not up to the challenges, Socialist Party member Pierre-Alain Muet countered that the budget is marked by courage, justice and economic efficiency.

The text aims to reduce the deficit from 4.5% of gross domestic product (GDP) this year to 3% of GDP at the end of 2013. According to both the European Commission and the International Monetary Fund, this ambitious objective will not be met until 2014, unless growth in France reaches 1.2%.

Frances 2013 finance bill provides notably for an exceptional 75% contribution to be imposed on income in excess of EUR1m per beneficiary, and introduces a marginal income tax rate of 45% levied on income in excess of EUR150,000.

Although an effort will be demanded from all taxable households in France via the non-indexation of the individual income tax scale, the most modest households will benefit from a credit mechanism (dcote) ensuring that those whose actual income has not increased, remain exempt from taxation.

Other key initiatives provided for in the text, include 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.

The government also plans to restore the yield derived from the solidarity tax on wealth (ISF), by overturning the 2011 ISF reform implemented by the previous government under former French President Nicolas Sarkozy. However, the threshold for application of the tax will be maintained at EUR1.3m and a cap on direct tax (income tax, wealth tax, and the general social contribution) will be introduced to ensure that the sum of tax due does not exceed 75% of income.

Initiating a shift towards ecological taxation, the bill extends the general tax on polluting activities to include five new polluting substances. The bill increases the rates and lowers the threshold for application of the levy. The tax levied on the most polluting vehicles is also increased.

Senators are due to begin their examination of the text shortly. The French Senate recently rejected the governments 2013 social security finance bill.

The text is due to be definitively adopted on December 20. The National Assembly constitutionally has the last word.

TAGS: tax | gross domestic product (GDP) | entrepreneurs | budget | corporation tax | tax rates | social security | France | tax reform | individual income tax

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