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France rows back on tax cut delay as labor reform debate opens
July 10, 2017 / 1:32 PM / 4 months ago

France rows back on tax cut delay as labor reform debate opens

PARIS (Reuters) - The French government will push ahead with tax cuts promised by President Emmanuel Macron, sources said on Monday, rowing back on comments from the prime minister that some could wait.

The cuts are a key plank of Macron’s economy-boosting reforms, but their timing was thrown into doubt last week when Prime Minister Edouard Philippe suggested the government could not afford to launch them as soon as next year.

Confirmation they will go ahead next year came on the day the debate opened in parliament on another of his main policy measures, pro-business labor reforms.

“The president and the prime minister’s objective is for tax measures to be undertaken in the 2018 budget bill to trigger a supply-side shock and boost confidence,” a source in Philippe’s office said.

“To do this, the government is studying solutions to step up tax cuts starting from 2018, especially on property taxes and the wealth taxes,” the source said, adding the government still aimed to meet an EU deficit target.

French business leaders had bridled at the proposed delay to the tax measures, warning that the country needs urgent to reduce the tax burden in order to restore competitiveness.

Also facing criticism over the delay from a number of economists, Philippe made a phone call late on Saturday night to set up an emergency meeting with Finance Minister Bruno Le Maire and with Macron to review the tax cut timing, a finance ministry source said.

Le Maire then hinted at a business conference on Sunday that the timing was once more under review. During the meeting itself, Macron insisted that the plans to rein in France’s wealth tax and scrap local property taxes for 80 percent of those who pay them should after all begin to take effect in 2018, the source said.

A delay was raised after the public audit office said a budget shortfall left by former president Francois Hollande’s government would result in a deficit of 3.2 percent of national output this year compared with the Hollande government’s forecast of 2.8 percent.

Macron has promised to meet the EU’s three percent target in 2017, in what would be the first time in a decade France falls in line with the European deficit ceiling.

PAIN AHEAD

To meet the deficit target this year, the government is scrambling to come up with four to five billion euros in budget savings.

The situation will only get more difficult next year, and Macron’s pledges to cut local property taxes and limit the scope of the wealth tax to property could put a strain on revenues in the years ahead.

Les Echos newspaper said that reining in wealth and property taxes next year would cost about six billion euros. The finance ministry declined to comment when contacted by Reuters.

The paper said that that would come on top of seven billion in tax cuts already budgeted by the previous government, which Philippe confirmed over the weekend would be maintained.

Offering some relief to the government is the growing chance that economic growth will be stronger this year than the 1.5 percent that the budget is based on. The Bank of France raised its forecast last week to 1.6 percent from 1.4 percent after recently strong data.

writing by Leigh Thomas Editing by Andrew Callus/Jeremy Gaunt.

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