August 29, 2013 / 1:51 PM / 4 years ago

France scales down plans for tax hikes in 2014

PARIS (Reuters) - France’s government said on Thursday it would rein in its plans for a new round of tax increases next year, acknowledging that imposing a bigger burden on companies would put jobs at risk.

French Finance Minister Pierre Moscovici attends the MEDEF summer forum on the campus of the HEC School of Management in Jouy-en-Josas, near Paris, August 29, 2013. REUTERS/Benoit Tessier

President Francois Hollande’s Socialist government had originally planned to raise an additional 6 billion euros (5.1 billion pounds) in new taxes next year but acknowledged recently that taxpayers were reaching their limits.

“We will do less than expected,” Budget Minister Bernard Cazeneuve said in an interview with Les Echos business daily.

However, he said income tax brackets would be raised in line with inflation after two years of freezes, which amounted in effect to broad-based tax increases. He gave no further details.

At a business conference hosted by the Medef employers’ union, Finance Minister Pierre Moscovici also said the 2014 budget would now aim to keep the tax burden stable.

He said the government had taken on board companies’ frustrations over the level of taxation in France, as well as high labour costs.

“The level of taxes that weigh on companies is not good for jobs, and we need to lower labour costs,” he told an audience of business people on the campus of the HEC business school just outside Paris. “Taxes on companies will not rise in 2014”.

At 44.2 percent of GDP, the French tax burden ranks behind only Denmark and Sweden among the 34 members of the Organisation for Economic Co-operation and Development.

The government is seeing a growing backlash from voters and businesses after it imposed 30 billion euros in hikes this year, seeking to honour a promise to its EU partners to bring its budget deficit below the bloc’s target ceiling next year.

But the European Commission has said France need not meet the target till 2015, and both the Commission and the International Monetary Fund warned France this month that it can no longer raise taxes without harming growth and costing jobs.

The government had planned to cut its public deficit to 2.9 percent of economic output in 2014 from an estimated 3.7 percent this year. As of this week it still needs to find extra revenues to offset a cut in companies’ social charges, which it promised under a pension reform unveiled on Monday.

That cut aims to keep the cost of employing people from rising under the reform by offsetting a planned increase in companies’ contributions to the retirement system.

Economists see the high cost of employing people in France as one of the main reasons for a steady decline in competitiveness on international markets in recent years.

At the Medef conference, chief executives and entrepreneurs aired common complaints about a state they said was alarmingly out of touch with business concerns.

“For companies that are the locomotive of our economy, that create jobs, that bring money into state coffers, yes, France is a hell of taxation,” said Denis Payre, founder of logistics web site Kiala.

Reporting by Leigh Thomas and Nicholas Vinocur; Editing by Ruth Pitchford

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