France unveils sweeping 'middle class' tax reform

14th September 2005, Comments 0 comments

PARIS, Sept 14 (AFP) - The centre-right French government unveiled on Wednesday a landmark income tax reform aimed at helping the middle class, boosting the economy and lowering French rates to average European levels.

PARIS, Sept 14 (AFP) - The centre-right French government unveiled on Wednesday a landmark income tax reform aimed at helping the middle class, boosting the economy and lowering French rates to average European levels.

Promising that "everyone would gain", two key ministers told the newspaper Le Figaro and France Inter radio that a key point was a reduction in the number of tax bands from six to four.

That would reduce the speed at which a rise in income would attract a higher tax.

A second main point was the introduction of a 60 percent ceiling on the total amount of tax paid by any individual in the form of income tax, wealth tax and local taxes.

Economy and Finance Minister Thierry Breton told Le Figaro: "Everyone will gain...the main benefit will be paid by salaried, middle-class workers, those who earn between EUR 1,000 and 3,500 (US $1,230-4,300 dollars) per month." The rates apply per person and not by household.

Breton said on LCI television: "It is the first time that such a deep reform has been made."

Budget Minister Jean-François Copé later told France Inter Radio that a main principle of the reform was fairness. The government was giving priority, after policies to reduce unemployment, to "returning buying power to people".

The government, facing presidential and legislative elections in 2007, was elected on a platform of reform and promised to ease tax and social security charges, high by European standards, towards the European average.

This was part of a strategy to boost the economy and tackle high unemployment while also containing high public spending.

In particular, President Jacques Chirac promised to reduce income tax by a third over five years.

But widespread hostility to reform, and continuing breaches of EU and eurozone spending rules, have caused the government to suspend the tax cut, amounting so far to scarcely 10 percent.

The 'middle class' of voters is widely seen as increasingly important, not just to the economy, but also as an electorate.

Traditionally organised industrial labour is less of a monolithic political force than was the case 25 years ago, and meanwhile the 'middle classes', while growing in number, consider that their living standards have been unduly squeezed.

On July 14, Chirac said he wanted to see a resumption of the reductions in 2006. But only about half of adults qualify for income tax, so its reduction raises objections that help should be given first to those on low incomes.

The new tax bands for income tax will range from 5.5 percent to a maximum of 40 percent, replacing a range of 6.83 percent to 48.09 percent.

However, the change will be accompanied by removal of an flat rate reduction of declarable income for all taxpayers.

Copé also said that a special solidarity wealth tax, levied on incomes to help pay for social security and welfare deficits, would not be increased.

Breton said that the total amount any taxpayer could be charged in respect of income tax, wealth tax on assets, and local taxes would be limited to 60 percent of income.

This particular measure is estimated to affect 120,000 wealthier taxpayers, although Breton said that 90 percent of them were at the bottom of the bracket and some might be farmers.

Any alleviation of the solidarity wealth tax is highly controversial. A growing number of voices among supporters of the government object that the tax drives many people with substantial capital, and successful entrepreneurs, abroad, and that some retired farmers with low incomes have to sell land to pay the wealth tax on their property.

But government opponents say a reduction would be an unwarranted benefit for the wealthy.

The reform will also include measures to prevent an estimated 10,000 wealthy taxpayers from accumulating special tax allownaces and loopholes.

Copyright AFP

Subject: French news

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