The French government announced tax hikes Wednesday for rich people, oil and financial companies and also on dividends, which would earn revenue of 7.2 billion euros in order to achieve the deficit target and to avoid pressures on financial markets. The tax hike for next year is even higher, under a very slow economic advance, according to Bloomberg. Of the 7.2 billion euros, 2.3 billion euros would come from an exceptional charge on assets of rich people. Nearly 900 million euros will result from the termination of a tax exemption period.
The measures also include extra charges for oil and financial companies, with revenue projected at 500 million euros for each sector and also the introduction of a tax on dividends and raising taxes on share purchase options. “We are facing an extremely difficult economic and financial situation. The richest families and large companies will be required to contribute. In 2012 and 2013, the effort will be very tough,” said the Finance Minister, Pierre Moscovici. The government will have to identify additional revenue and spending cuts of 6-10 billion euros this year and another 33 billion euros next year to meet commitments on budget deficit. Interest on ten-year loans accessed by France is placed at 2.55%, compared to 6.21% for Spain and 5.71% for Italy.
The budget correction adopted by France reversed the policy of former President Nicolas Sarkozy. Sarkozy has cut taxes for the wealthy, arguing that they will be encouraged to remain in France, and removed the tax on wages for overtime hours. The current president, Francois Hollande, said that the budget for 2013 will bring back the tax for the wealthy people with assets of over 1.3 million euros to the level before Sarkozy. Companies with revenues of over 250 million euros will pay earlier a portion of the tax due for this year. Also, companies will pay a fee of 30% on options to acquire shares, up from 14%. Executives receiving options will also pay a higher tax, 10% vs. 8% today.
The budget for next year will include an increase of tax to 75% for people who earn over 1 million euros. The government has also announced spending cuts. For the period 2013-2015, the executive aims to reduce the number of public employees by 2.5% annually and the operating costs – including fleet – with 10% a year. Prime Minister, Jean-Marc Ayrault, asked the ministries, except Education and Justice to immediately reduce spending by 2.5%.
At the first meeting of the government, Hollande has decreased by one third his own salary and those of Ministers, as he promised before the elections. Taxes would rise by 2017 from 43.9% of GDP to 46.5%, while expenditures would fall from 56.2% of GDP to 53.4% in 2017. State debt is projected to reach a maximum of 90.6% of GDP next year, and it will go down to 79.6% to 2017. The government in Paris considers an economic growth of 0.3% this year, 1.2% next year and 2-2.5% annually between 2014-2017.
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