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François Hollande admits French taxes are ‘too much’

Hugh Carnegy
French President Francois Hollande
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When François Hollande came to power last year, his most famous election promise was to impose a 75 per cent tax rate on those earning more than 1 million euros ($1.3 million) a year. Now France's socialist president has acknowledged that the country is hitting the tax buffers.

In a television interview this week, he noted that both his and the previous center-right government had raised taxes in total by 60 billion euros since 2011, equivalent to about 3 per cent of national income. "That's a lot – that's to say, too much," he said.

Mr Hollande has promised a "tax pause", backing up his finance minister, Pierre Moscovici, who last month triggered a political tremor when he said he was "very conscious that the French are fed up with taxes".

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French business leaders have been clamoring for relief from a relentless increase in the tax burden, which government projections show will rise to 46.5 per cent of gross domestic product next year, one of the highest levels among developed economies. Recent polls have indicated the French public increasingly feels much the same.

The issue is not a simple one for the government. It has, like its predecessor, relied heavily on tax rises in the battle to close the budget deficit and reduce France's high debt.

Yet recent recession has seen the deficit remain stubbornly high, with public debt now set to top 95 per cent of GDP next year, according to figures published on Tuesday by Le Figaro newspaper, which Mr Moscovici did not deny.

Still, a tentative recovery has emboldened the government to halve its original plan to raise a further 6 billion euros in net new taxes next year.

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It is emphasizing that the 18 billion euros in savings to be included in the 2014 budget, due to be published in detail next week, will include 15 billion euros in spending cuts, a reversal of the previous pattern of most savings coming from new taxes.

Mr Moscovici has described this as "totally unprecedented". Bernard Cazeneuve, the budget minister, called it "historic".

Among notable recent suggestions for new taxes to bite the dust are a proposal to impose a levy on the sale of internet devices (to help fund France's film industry) and an increase in diesel prices sought by Mr Hollande's Green party allies. Income tax brackets are to be reindexed and the president says a discount will be introduced for those at the lower end of the income tax scale.

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But the tide of taxes is not about to abate quickly as a number of previously announced measures have yet to kick in. The 75 per cent marginal rate is due to be introduced for two years from next year, paid for by companies paying salaries above €1m. An increase in value added tax from 19.6 per cent to 20 per cent will start next year along with other measures such as an increase in pension contributions.

"The problem is, people will continue to feel a hit next year as there will be a 12 billion euros increase in tax on households in 2014," says Henri Sterdyniak, of Sciences-Po university.

The government rather sheepishly acknowledged this on Wednesday, with Jean-Marc Ayrault, the prime minister, saying: "There will be, in effect, a slowdown (in 2014), leading to a tax pause that will take effect in 2015."

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Business is set to benefit from the introduction of a tax credit on employees, to be worth 20 billion euros in 2015, aimed at cutting France's high cost of labor. It is also promised measures to offset 2 billion euros in new employer pension contributions.

But business leaders remain dissatisfied, calling for much more aggressive cuts in public spending – which accounts for 57 per cent of GDP – and tax cuts. Pierre Gattaz, new head of Medef, the employers' confederation, complained on Tuesday that French companies paid 50 billion euros more in tax and social charges than their German rivals.

He singled out a recently announced 2.5 billion euros tax on gross profits, contrasting it with Mr Hollande's rhetoric on encouraging enterprise: "Bravo. But what do they do? Boom! They tax," he said.