French taxes going up and growth going down, says government
French prime minister Francois Fillon has confirmed an extra tax on any resident in France earning more than €500,000, while lowering growth expectations for 2011 and 2012.
Fillon stated at a press conference today that a special tax hitting those earning more than €500,000 a year will be implemented as part of new austerity measures to bring the French deficit down to 3%.
The added tax will only be in place as long as the deficit remains above this figure. He currently expects the French deficit to be 5.7% in 2011, 4.6% in 2012, 3% in 2013 and 2% in 2014.
Social security payments will rise from 12.5% to 13.5% and an added tax of 6% will be imposed on alcohol, tobacco and drinks with added sugar.
The current capital gains tax will also be revised in line with inflation, Fillon said.
Fillon also adjusted GDP growth forecasts for this year and next. The estimate for 2011 has been cut to 1.75% against a previous forecast of 2%.
The forecast for 2012 is 1.75%, down from original expectations of 2.25%.
France experienced flat growth in the second quarter of 2011 against expectations of a 0.3% rise, and down from a 0.9% increase in the first quarter of the year.
Reaction in France
French financial paper La Tribune called Fillon’s budget plan a “programme minceur” or “diet plan”.
On Tuesday this week top executives from 16 French companies including Société Générale, L’Oréal, Total and Orange requested an additional tax aimed at high earners, to help the country’s economy.
The 16 business and finance leaders signed a petition, due to appear in French newspaper Le Nouvel Observateur, in favour of implementing a “special contribution” tax aimed at France’s highest earning taxpayers.
The signatories explained they were conscious of having benefited from the French economic model and European economic environment. They therefore want to give something back to guarantee the future of both France and Europe.
They warned the size of the contribution should be calculated “within reason” to avoid provoking harmful economic consequences such as large outflows of capital or higher levels of tax evasion, the appeal stated.
The sixteen signatories included Frédéric Oudéa (chief executive of Société générale) Jean-Paul Agon (chief executive of L’Oréal), Liliane Bettencourt (L’Oréal’s majority shareholder), Maurice Lévy (chief executive of advertising company Publicis), Christophe de Margerie (chief executive of oil company Total) and Stéphane Richard (chief executive of telecommunications business Orange).
Michel Pébereau, chief executive of BNP Paribas, also recently declared his support for increased taxation of France’s wealthiest taxpayers in a statement sent to French news site, Rue89.
The signatories warned that their contribution alone would not be enough to provide a solution to France’s or Europe’s current economic woes. “This contribution has to be part of a more global effort to reform both in terms of expenses and revenue,” they wrote.
France’s economy has come under closer scrutiny recently with President Nicolas Sarkozy cutting his summer holiday short to hold talks with ministers to examine the French financial situation.
Although ratings agencies Fitch, Moody’s and Standard and Poor’s say they are not planning to downgrade France’s AAA rating any time soon, many doubt France’s capacity to keep contributing to European bailouts given its slowing growth rate.