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France hits big firms, rich with tax hikes

05 July 2012   (0 Comments)
Posted by: SAIT Technical
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By Daniel Flynn (Business Report/Reuters) 

FRANCE’S new Socialist government announced a raft of tax rises worth e7.2 billion (R73.3bn) yesterday, including heavy one-off levies on wealthy households and big corporations, to plug a revenue shortfall this year resulting from feeble economic growth.

Revenue of e2.3bn from a one-off levy on those with net wealth exceeding e1.3 million and e1.1bn in extraordinary taxes on large banks and on firms holding oil stocks are central parts of an amended budget presented to parliament ahead of a vote this month.

The measures, in line with President François Hollande’s election campaign pledges, should be approved without hitches given the Socialists’ clear majority in parliament.

Hollande says the rich should pay their share as France battles to cut its public deficit from 5.2 percent of gross domestic product (GDP) last year to within 4.5 percent this year and 3 percent in 2013 despite a stagnant economy and rising debt.

The new budget followed a grim assessment of public finances on Monday by the state auditor, which warned that the deficit needed to be cut by between e6bn and e10bn this year and a hefty e33bn in 2013 if France was to achieve its budget goals and avoid the risk of a spiral in public debt.

"The immediate effort will come from tax revenues but there will be an effort on spending during the rest of the government’s term,” Budget Minister Jerome Cahuzac said, referring to the government’s strategy of paving the way for painful austerity measures with taxes on the rich.

"Cutting spending is like slowing down a supertanker: it takes time,” he added.

The government said the amended budget was necessary after the conservative government of former president Nicolas Sarkozy systematically overestimated France’s economic growth and the responsiveness of tax revenues.

On Tuesday Prime Minister Jean-Marc Ayrault slashed this year’s official GDP growth forecast to 0.3 percent from a previous estimate of 0.7 percent, and to 1.2 percent in 2013 from 1.75 percent previously.

By eliminating a tax exemption on overtime introduced by Sarkozy, the Socialists aim to raise e980m this year.

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