France to Cut Tax Breaks

June 28, 2010 Taxation in France

Le Palais BourbonThe French Government has indicated that it intends to cut selected national tax breaks and reduce public spending over the next three years, in order to lower the national deficit to appropriate EU levels.

Speaking in at a radio interview on June 27th Francois Baroin, Budget Minister of France, revealed the French Government’s intentions to improve the national budget by over EUR 10 billion in 2011 through tax measures and public spending cuts. The move is aimed at reducing the Government deficit to only 3 percent of GDP by 2013, from the current level of 8 percent of GDP. The Government will carry out the changes in a manner which will not affect the country’s economic growth projections, which are currently 1.4 percent and 2.5 percent for 2011 and 2012 respectively. Commenting on the proposals, economists have already labeled them as overly optimistic and unattainable. However, the Minister has called the plan “ambitious but achievable.”

Reassuring French taxpayers that the move will not herald a new sense of austerity for the Government, Francois Baroin said the cuts will only address loopholes in the tax system and several existing tax breaks. According to the Minister, current tax breaks cost the Government EUR 70 billion annually, with nearly one third of the breaks no longer being necessary for France. If carried out, the cuts will a give a EUR 10 billion boost to the budget over three years. The Minister also indicated that the Government will outline EUR 10 billion in extra spending cuts by July 2nd, in addition to the EUR 7 billion already approved to be cut in the budget. Francois Baroin also intends to propose a freeze to public sector wages.

According to political analysts, while suffering from similar budgetary deficits and economic factors as other EU nations, the French Government is not willing to engage in comprehensive austerity measures like tax hikes. The caution has been attributed to France’s historically fickle electorate, and politician’s fear of strong backlashes to any measures deemed too harsh. Francois Baroin summarized the Government’s new sentiment towards spending cuts, saying, “Everyone has to make an effort.”

Photo by Ulleskelf