France Details New Taxes and Spending Cuts

September 26, 2013 Taxation In EuropeTaxation in France

Pierre MoscoviciPARIS – France will tackle the national budget deficit by cutting spending, while encouraging economic activity through targeted tax changes.

On September 25th the Finance Minister of France Pierre Moscovici and the Budget Minister Bernard Cazeneuve unveiled the government budget for the 2014, detailing nearly EUR 3 billion worth of tax hikes, and an approximately EUR 15 billion of cuts to public spending.

In order to boost competitiveness in the economy and to spur job creation, the announced tax changes are primarily aimed at reducing the overall tax burden faced by businesses.

As a means of addressing the issue of unemployment, the government will raise the rate of the tax allowance granted under the Crédit d’Impôt Compétitivité Emploi system from 4 percent to 6 percent, granting a total of EUR 20 billion in tax breaks to businesses over the course of the coming year.

New tax incentives will also be offered to individuals who invest into small and medium sized enterprises, with the move intended to increase the rate economic expansion while encouraging French taxpayers to put away more funds into the national economy.

While tax breaks are given to small businesses, large enterprises with turnovers exceeding EUR 50 million will face an extra new tax of 1 percent.

In an effort to balance out the tax breaks given to businesses and investors, and to raise the overall level of tax revenues, the government will enact a 50 percent tax on all salaries exceeding EUR 1 million, and will also hike the top rate of VAT from 19.6 percent to 20 percent.

The extra tax revenues in the budget will not come exclusively from tax hikes, as a significant portion of the collections will be a result of new efforts to clamp down on tax evasion and excessive tax avoidance.

While announcing the budget, the Ministers emphasized the idea that the tax hikes have been kept at the lowest possible level, and they added that the majority of the budgetary savings will come from significant reductions in public spending, with an estimated EUR 6 billion to be cut from outlays on social projects, and an extra EUR 9 billion to be slashed from the expenditures of state and federal agencies.

The efforts to boost revenues and cut expenditures is expected to result in an overall reduction of the government’s budget deficit, which is expected to fall from the current level of 4.1 percent to 3.6 percent by the end of next year.

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