France’s socialist government announced a big one-off increase in wealth taxes on Wednesday, by far the biggest single element in a €7.2-billion ($9-billion U.S.) package of new levies aimed at meeting this year’s budget deficit target that also included surcharges on banks and energy companies.
The supplementary 2012 budget, required to ensure the government hits its deficit target of 4.5 per cent of gross domestic product this year, was weighted overwhelmingly towards taxes on the rich and big companies as ministers said planned spending cuts would mainly take effect from next year.
An extra €2.3-billion will be raised by an exceptional tax charge on all those with net wealth of more than €1.3-million.
Citing an “an extremely difficult financial and economic situation”, Pierre Moscovici, the finance minister, said: “The wealthiest households and the big companies will be asked to contribute. In 2012 and 2013, the effort will be particularly large.”
Further tax increases for next year, when the government is expected to have to find €33-billion in savings to bring the deficit down to 3 per cent of GDP, will be spelt out in the autumn. They will include President Francois Hollande’s election pledge of a 75 per cent marginal rate on annual incomes of more than €1m – and permanent increases in wealth taxes.
But ministers said the tax regime would then be held stable for the rest of government’s term up to 2017, when France is due to balance its budget. They made clear that from 2013, spending cuts would make up half of the savings required to meet this target.
Mr. Hollande has refused to acknowledge that France requires austerity policies similar to those imposed in other countries threatened by the eurozone crisis, such as Italy and Spain. But with its public debt forecast in the budget to top 90 per cent next year, it is under serious pressure from financial markets – and the European Commission – to meet its budget commitments.
The budget said state spending, apart from debt and pension payments, would be frozen in nominal terms from next year, with a similar approach taken to funds for local authorities. Increases in health spending would be limited to 2.7 per cent in 2013 – a level slightly above that recommended by the national auditor earlier this week.
Overall, public spending as a proportion of GDP, second only to Denmark in Europe, will rise slightly this year to 56.2 per cent before falling slowly to 53.4 per cent in 2017. The tax burden will, however, keep rising to 46.5 per cent – also one of the highest in Europe.
This year, including the wealth tax and a smaller increase in inheritance and gift taxes, the better-off will carry a comfortable majority of the additional €3.4bn to be raised from households.
Taxes on business will raise €2.9-billion, including a €550-million surcharge each on petroleum stocks held by energy companies and on banks. Other hits included an expected 3 per cent tax on company dividends and an increase in the taxation of bonuses and stock options.
The rate of France’s limited financial transaction tax, restricted to a charge on the sale of shares in quoted French companies pending agreement in the eurozone for a more broadly based FTT, will be raised from 0.1 per cent to 0.2 per cent when it takes effect on August 1.