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(Jul 13, 2012) On July 4, 2012, Pierre Moscovici, France's Minister of Economy, presented a revision of the 2012 Finance Law to the Council of Ministers. (Loi de finances rectificative pour 2012, Portail du Gouvernement (July 4, 2012).) The amended budget is designed to meet the promise of holding the budget deficit to 4.5% of the gross domestic product in 2012. The Minister announced €7.2 billion (about US$9 billion) in increased taxes, to be borne by large corporations and wealthy households. A freeze on government spending is expected to save €1.5 billion (about $1.8 billion). (Id.)

A recent report prepared by France's National Audit Court showed that to maintain a deficit of no more than 4.5%, France needed €6 to 10 billion (about US$7.5 to $12.5 billion) in tax revenues and spending cuts in 2012. In addition, €33 billion (about US $41.2 billion) in revenue or cuts will be needed in 2013 to bring the deficit to 3%, assuming that the economy grows at a rate of 1% in 2013. The auditors urged the government to cut spending rather than raise taxes, because they saw the latter as hurting economic growth. They also asked the government to prepare structural measures to curb inefficient public expenses. (Press Release, Situation and perspectives des finances publiques 2012 (July 2, 2012), Cour des Comptes website.)

Key measures proposed by the government include:

  • an extraordinary levy on the assets of individuals who hold more than €1.3 million (about US$1.62 million) in total assets, which is expected to bring in €2.3 billion (about $2.87 billion). Next year, the government is also expected to tax those with incomes of more than €1 million (about US$1.25 million) a year at a rate of 75%. The modalities of this new tax have not yet been determined, and efforts will be made to take into account the risk that companies may send their high-level management personnel out of France or change their legal seat;
  • a reduction of the personal allowance that applies to inheritances and gifts within direct lines of descent, from €159,325 (about US$199,000) to €100,000 (about US$125,000). This decrease would bring an additional revenue of €140 million (about $175 million) in 2012 and €1.2 billion (about $1.5 billion) in 2013;
  • an increase in the taxes on income from real estate owned by non-residents in France. Taxes on rentals would be raised from 20% to 35.5%, and capital gains tax on property would rise from 19% to 34.5%. In both cases, the increase of 15.5% has been labeled by the government a "social contribution." This increase would add €50 million (about US$62.5 million) to France's revenues this year and €250 million (about US$312 millions) in 2013;
  • a one-time tax of 4% on oil inventories owned by oil companies, expected to raise €550 million (about US$688 million);
  • elimination of the tax exemptions on individual income tax and social security for overtime income, which had been created by former President Nicolas Sarkozy to raise take-home pay. This measure is expected to bring in €980 million in 2012 and €3 billion in 2013;
  • a new 3% tax to be paid by companies on dividends distributed to shareholders;
  • a doubling of the tax on financial transactions to 0.2%;
  • repeal of a law that as of October 2012 would have shifted 1.6% of labor charges onto the consumer through an increase in the sales tax (TVA, value-added tax);
  • the levy of an additional extraordinary contribution from large banks equal to the systematic risk tax for 2012;
  • limits on exemptions for employee saving schemes; and
  • advance payment of a 5% corporate tax for corporations having a turnover equal to or higher than €250 million (about US$312 million). (Loi de finances rectificative pour 2012, supra; Anne Eveno, 7,2 millards d'impôts supplémentaires en 2012, LE MONDE (July 4, 2012).)

These figures are based on the assumption that the economy will grow by 0.3% this year, 1.2% in 2013, and then by 2% each year thereafter. (Eveno, supra.)

Author: Nicole Atwill More by this author
Topic: Budget More on this topic
Jurisdiction: France More about this jurisdiction

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Last updated: 07/13/2012