13th Apr 2021

France will lower taxes in spite of Brussels

  • Jean-Pierre Raffarin focusing on economic growth and employment (Photo: European Commission)

In an interview with Le Figaro, French Prime Minister Jean-Pierre Raffarin says he is determined to implement a three percent tax cut next year.

France however, will not manage to reduce public spending as the government intends to introduce big reforms in the next two years.

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This move will certainly upset Brussels as eurozone ministers recommended to France last June that - due to France's high budget deficit - that any tax cuts must be followed by a complete reshaping and better management of public spending.

French President Jacques Chirac promised to cut income taxes by 30 percent in five years. The new projections show that taxes will decrease by 10 percent in two years.

France notified the European Commission on Monday (1 September) that its budget deficit would be as high as four percent of gross domestic product (GDP) - a clear breach of the three percent limit set by the Euro-zone's stability pact.

The European Commission's reaction was to single out France for blame, saying that it had gone "off the rails". Due to French ill discipline, the entire Euro-zone might exceed the three percent limit this year, said the Commission.

On a visit to the European Commission last week, Mr Raffarin confirmed that Paris would try to bring its budget deficit below the three percent threshold but could not say in what year France will do so.

France could potentially face fines of up to 0.5 percent of GDP, equivalent to around 7.6 bn euro, if it does not put its expenses in order.

Employment and growth

Jean-Pierre Raffarin last week in Brussels called again for flexibility in the stability pact, and blamed weak growth for the difficult budgetary situation in which France found itself this year.

Now, Prime Minister Raffarin states that he will mainly focus on employment, and therefore on economic growth and solidarity. He wants a 500 million euro increase in the social aid fund for the least favoured.

The Prime Minister forecasts economic growth of 1.7 percent for next year while experts say that growth this year will not reach one percent.

Euro-zone could fail to meet its own criteria

With the big countries Germany and France about to break the euro-zone stability pact the euro-zone economy as a whole is at risk of breaking the rules this year.

France recommits to euro rules

Faced with the prospect of massive fines, the French Premier Jean-Pierre Raffarin said on Wednesday (27 August) that his country will try and abide by the rules governing the eurozone despite earlier objections.

European growth plan initiated

France and Germany will initiate a joint action for growth, that could be extended to the rest of the EU.

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