Will business be the winner in France’s 2014 budget?
France is set to present its budget for 2014 on Wednesday, and perhaps surprisingly under a socialist government, the tax burden on businesses looks likely to fall.
While proposed reforms to France's deficit-hit pensions system could mean increased taxes for both employees and employers, companies will also benefit from a €10 billion($13 billion) tax credit under the Growth and Competitiveness Pact, which should outweigh the impact of the taxes.
"The overall burden of taxes is set to shift from corporations and towards households," said UBS Economist Amit Kara in a report called "France budget preview – more but less fiscal consolidation".
(Read more: François Hollande admits French taxes are 'too much')
Meanwhile, households will have to contend with a rise in both sales taxes and in social insurance (due to the pension reform), while seeing family credit decrease.
This comes on top of a 2011 freeze to the income tax grading scale, which created over 1 million new taxpayers in 2013. While the government is expected to reverse the freeze in its new budget, only 135,000 new households are seen being exempted from taxes.
Plus, the government is expected to present an austerity package with big spending cuts on Wednesday, as it grapples to bring its deficit under 3 percent of GDP (gross domestic product), as required by the European Commission. French Finance Minister Pierre Moscovici has already said that France will miss its previous deficit targets for 2013 and 2014,and raised them to 4.1 percent and 3.6 percent respectively.
(Read more: France cuts forecasts for growth, budget shortfalls)
UBS forecasts the proposed austerity package will save the government 0.9 percent of GDP or 18 billion euros, while BNP Paribas forecasts savings worth 0.7 percent of GDP.
Spending cuts have become a matter of pride for the current government, with Prime Minister Jean-Marc Ayrault penning a letter to ministers stating that this government could be the first since 1958 to cut its spending.
BNP Paribas economist Dominique Barbet said that while a sharper decline in spending would be better, the proposed cuts would be positive for competitiveness and future growth, and meant the deficit reduction target might be achievable.
The budget will be presented by Budget Minister Bernard Cazeneuve at 10 a.m. CET, who will then host a joint press conference with Moscovici at 3 p.m.
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