The newly elected French Socialist Government singled out wealthy households and big corporations by announcing a big one-off increase in wealth taxes, the single biggest element in €7.2 billion package to meet the country’s budget deficit target.
The government plans to raise €2.3 billion through an exceptional tax charge on households with a net worth of €1.3 million and above. Another €1.1 billion will come from large banks and energy firms, and a freeze on some spending will save 1.5 billion euros. The government decided to raise taxes in a revision of the 2012 budget, in order to bring down the budget deficit to 4.5 percent of GDP this year from 5.2 percent in 2011. The statement said budget deficit will be further reduced to the EU ceiling of 3 percent of GDP by 2017.
The Socialists came to power by defeating the center-right president Nicolas Sarkozy, with a campaign promise to switch the focus in the Eurozone debt crisis from austerity to growth. The finance minister Pierre Moscovici said spending cuts would take effect from next year, and the country’s public debt will rise above 90 per cent of GDP to a high point of 90.6 per cent in 2013, before falling to 82.4 per cent in 2017.
Further tax increase for the next year will be announced in autumn. In 2013, the government would need a hefty €33 billion in savings to bring down the budget deficit at 3 percent level; otherwise the country may be dragged in the center of Eurozone crisis.
“We are in an extremely difficult economic and financial situation,” Finance Minister Pierre Moscovici told a news conference. “In 2012 and 2013, the effort will be particularly large. The wealthiest households and big companies will have to contribute.” High budget deficits has increased the country’s national debt by €800 billion in the last 10 years to €1.8 trillion – which is 90 percent of GDP.
The government also reduced official GDP growth estimates for 2012 to 0.3 percent from a previous estimate of 0.7 percent, and to 1.2 percent in 2013 from 1.75 percent previously.
Doubling the financial transaction tax from 0.1 percent to 0.2 percent, which will take effect on August 1, will generate €170 million, and canceling a law which shifted labor charges onto a rise in VAT sales tax is also expected to yield of 800 million euros.
The officials said that one-off rise in wealth tax on households is likely to affect over 300,000 taxpayers, who were earlier protected by a tax shield on rich introduced by Nicholas Sarkozy. With exception to debt and pension payments, state spending would be frozen in nominal terms from 2013.
“It is completely false to say that the tax increases will just hit the rich,” said Gilles Carrez, president of the National Assembly’s finance commission. “The bulk of the new taxes will hit the middle class and today we have the proof.”