French government moves to cut taxes as election approaches

[PARIS] France's government unveiled Friday plans to lower taxes on households and companies as the ruling Socialists line up their budget for the 2017 election year.

The gesture to households would "take the form of a reduction in income taxes by 20 per cent for the middle class," Finance Minister Michel Sapin told AFP.

France votes in presidential elections in April and May next year and President Francois Hollande's popularity is so low that he would probably not make it past the first round, according to opinion polls. He has not said whether he intends to run for re-election.

Around 5 million households would benefit from the 1-billion-euro (US$1.1 billion) reduction in income taxes, worth about 200 euros per family, Sapin said.

He also said that the headline tax rate for small and medium-sized companies would be reduced to 28 per cent - the European average in 2017 and 2018 - and for all companies from 2020.

That is a drop from the current headline rate of 33 per cent, although small companies benefit from a lower rate on a certain amount of profits.

However Mr Sapin said that despite the tax cuts France would honour its pledge to the EU to reduce its public spending deficit to 2.7 per cent of gross domestic product in 2017.

"We've made that promise to parliament and EU authorities and we're going to keep it," said Mr Sapin.

The announced cuts to income tax, coming just over seven months from the presidential election, would take the total reduction since 2014 to six billion euros.

Criticised for sharp tax hikes at the start of his five-year term in the face of a huge budget gap in the dark days of the eurozone crisis, Hollande has since turned towards a gradual reduction in tax rates, although the French economy has posted only modest growth and unemployment remains near record highs.

According to data from the French Economic Observatory, the tax bill of French taxpayers has gone up by 35 billion euros during Mr Hollande's term in office, with average spending power down by 350 euros from 2010.

Mr Sapin also announced a change allowing all retirees to deduct expenses for at-home services, a change which should benefit 1.3 million households at a cost of a billion euros.

In addition, Mr Sapin announced an increase in the tax credit for companies with low-wage employees, which he said would put an extra 3.3 billion euros in their accounts.

The CGPME, an association representing small and medium-sized companies, was cautious in its response.

The proposals "are very uncertain given the electoral calendar and at this point cannot be considered as money in the bank", the group said.

It added a more ambitious proposal would be to push the corporate tax rate below the European average to 25 per cent, and eliminate preferential rates for small companies.

"After having given companies and households, the middle class in particular, a tax drubbing, voila, the good news arrives as the election approaches," said former prime minister and conservative presidential candidate Alain Juppe of the government proposals.

AFP