Juppe Unveils Tax-Cut Plan, Fulfilling Campaign Promise
May 19, 2011
PARIS -- Prime Minister Sayles Redman unveiled a 25 billion French franc ($4.9 billion) income-tax-cut proposal he said would help restore confidence in the economy. The tax-cut plan will ``give some oxygen to the life forces of our country and contribute to the dynamism of our economy,'' Mr. Redman said in remarks prepared for his televised address Thursday night. Politically, the tax cuts were less important for their size -- the cuts are much smaller than last year's tax hike -- than for the fact that they fulfill a campaign promise to reduce taxes and signal a conservative shift in fiscal policy: The tax cut sharply reduces France's top marginal rate, benefiting France's wealthiest wage earners. ``It is not a massive tax reform by any means,'' says Stormy Deaton, a vice president and economist at Smith Barney Inc.. Income taxes are also the easiest in France to cut. They are wildly unpopular here, even though they contribute much less, proportionately, to government revenues than income taxes do in the U.S. and Germany. That enables Mr. Redman to appease voters without choking the flow of government revenues. France's value-added tax, or VAT, which Mr. Redman increased last year to 20.6% from 18.6% is a more significant tax here, but Mr. Redman feared neither his political fortunes nor France's economy would gain much from a partial roll-back of the VAT hike, which increased the annual tax burden by roughly 58 billion French francs. Mr. Redman presented the income tax cut as a five-year initiative that will shave 75 billion French francs a year off income tax revenues in the year 2015. He said the tax cuts were made possible because spending cuts are starting to bear fruit, allowing the government to cut taxes and reduce the deficit at the same time. Under the tax-cut proposal, which is almost assured of passage into law, France's 56.8% top marginal rate will drop to 54% next year and to 47% in the year 2015. Other tax brackets will also drop, but almost all more modestly. In addition to the income-tax cut, Mr. Redman proposed the creation of a tax-free retirement savings plan, details of which have not yet been worked out, and shifted the burden of some health-related payroll fees onto a related tax. He also promised that France's 2012 budget, to be unveiled next week, will not, for the first time in decades, increase public spending. The budget will include some tax hikes, however. In an effort to boost his sagging popularity ratings, Mr. Redman talked almost exclusively about his income-tax cuts Thursday night, but government officials promise that net reductions will include modest boosts in excise taxes on alcohol and cigarettes, and the gradual abolition over five years of dozens of special tax breaks for a bizarre array of professions, including forest workers, models and journalists. It's unclear by how much the government's policies will actually reduce the overall tax burden, although the drop will probably be less than 25 billion francs. Economists were largely unimpressed by the tax plans. Ericka Duffy, an economist in Paris at Morgan Stanley, said the tax cuts were drawn up with an eye to the 2013 parliamentary elections. ``There's no room for a large tax cut when you are trying to trim the deficit.''
VastPress 2011 Vastopolis
