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France: French government announces tax relief as euro election looms

Friday, 16 May 2014   (0 Comments)
Posted by: Author: Christian Hartmann
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Author: Christian Hartmann (Reuters)

French Prime Minister Manuel Valls, struggling to win back disgruntled voters, said on Friday his government planned to exempt a further 1.8 million households from income tax, at a cost to the state of 1 billion euros ($1.4 billion).

Valls, whose Socialist Party trails opposition parties in voter polls ahead of the May 25 European Parliament elections, said the move would take effect later this year and was aimed at restoring the dwindling purchasing power of consumers.

"It's one billion euros less in tax, one billion euros more in purchasing power for the French, especially the poorest," Valls said on Europe 1 radio.

"It will in large part be financed by clamping down on tax evasion," he said, adding that the government had already budgeted in 500 million euros to help cover costs of the move.

The tax relief may well add to France's already strained public finances as President Francois Hollande struggles to live up to a promise to cut its public deficit to an EU-agreed limt of three percent of economic output next year. That deadline itself was pushed back by two years.

The Socialist government is looking to make 50 billion euros in budget savings over the next three years which are key to keeping the deficit-reduction plans on track.

The International Monetary Fund warned on Thursday that the deficit targets could come under threat if the savings drive gets watered down while the government extends tax cuts to consumers and companies.

The French central bank said last month the government had to make sure there was no lag between cutting taxes and reining in spending that could endanger the fiscal targets.

The tax relief for households comes on top of 30 billion euros in payroll tax that the government plans to phase out in the next three years as part of a push to help French companies regain their competitiveness internationally.

Economy Minister Arnaud Montebourg said that at a time when companies were seeing their tax burden eased, it was a question of "social justice" to also help out consumers.

However, the move may also prove electorally astute with opinion polls suggesting that Hollande's Socialists may come out behind both the far-right National Front and the conservative UMP party in the EU parliament elections.

Hollande's government, reshuffled at the start of April after heavy Socialist losses in local elections, is seeking to counter charges by the UMP and National Front that it has pushed taxes higher but failed to reduce a high jobless rate, revive the economy or halt France's industrial decline.

In addition to the income tax relief, the government has sought to defuse anger among state-employed teachers - a major source of votes for the left wing - by pushing back the day teachers must return to work after summer vacation.

Accused by some opponents of surrendering France's trading power and industrial ownership, the government revealed plans on Thursday to expand its veto power over foreign purchases of French firms, extending a list of sectors where it has a say on the grounds that they are strategically sensitive.

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