World Economic outlook - How will France budget for 2013 : The French government will stick with its commitment to narrow the fiscal deficit to 3 percent of economic output next year, President Francois Hollande said, promising the most drastic budget cuts in 30 years.
Hollande, speaking in Paris to the state auditors today, said the 33 billion euros ($42 billion) of savings needed to hit the target will include 10 billion euros of spending cuts.
Hollande, speaking in Paris to the state auditors today, said the 33 billion euros ($42 billion) of savings needed to hit the target will include 10 billion euros of spending cuts.
“Part of our increased deficit comes from the crisis, but the crisis does not explain everything,” Hollande said. “The worsening of our public accounts is in large measure structural.”
The government is due to present its 2013 budget on Sept. 26. The deficit hit 5.2 percent of output last year and debt reached 90 percent, up from 1.6 percent and 60 percent respectively, 10 years earlier.
Hollande alluded to plans announced by the European Central Bank to buy the debt of troubled European countries, saying the move did not “absolve governments of their responsibilities.”
He also proposed a new body to oversee the implementation of the French government’s budget and its economic forecasts.
The new body, called the “Haut Conseil des Finances Publiques,” or “High Council of Public Finances,” would be led by the head of the state auditors and include four judges from the state audit body and four figures named by parliament.
“Too many governments have let themselves be guided by forecasts that were excessively optimistic,” Hollande said.
The French Finance Ministry this morning said the general budget deficit in the first seven months of the year widened to 63.8 billion euros from 59.1 billion euros in the same period a year earlier.
“The recent slowdown in economic activity seems to have taken a toll on the France’s budget data, particularly affecting corporate tax and income tax revenues, down from last year, while government spending is on an uptrend,” Thomas Costerg, an economist at Standard Chartered Bank Plc in London, said in an e-mailed comment. “It’s a clear wake-up call ahead of the draft of the 2013 budget.”
French 2013 Budgetary Overview Presented
French Finance Minister Pierre Moscovici has recently presented to the council of ministers a communication pertaining to the broad budgetary and fiscal guidelines for 2013.
The council of ministers is due to adopt on September 28 the state budget bill for 2013, the first budget of the current legislature.
In accordance with electoral commitments, the 2013 finance bill, due to be followed by the social security finance bill on October 10, will enable the government to reduce the public administration deficit to 3% of gross domestic product (GDP) in 2013, from 4.5% in 2012.
The budget will be based on a 'realistic' growth forecast for next year of 0.8% of GDP.
Underlining the fact that everyone will have their part to play, the finance ministry said that redressing the country's finances will be achieved by adopting a fair split of the burden, and will involve EUR10bn in expenditure savings, EUR10bn in additional taxes on large corporations in France, and a EUR10bn contribution from households, notably the country’s most wealthy.
The ministry highlights the fact, however, that although two thirds of the recovery effort will be realized by means of tax rises in 2013, given the magnitude of the effort required, the government aims to ensure that over the course of the five year period there will then be a fair split between tax increases and spending cuts.
To ensure that the tax measures do not adversely affect either competitiveness or growth in France, the EUR10bn tax increase on businesses will involve limiting tax breaks currently benefiting the largest corporate groups. The possibility of deducting loan interest from corporate tax will therefore be limited within the framework of the 2013 budget, a measure affecting above all big companies.
Very small companies in France (TPE) and small- and medium-sized companies (PME) will see the measures that they benefit from preserved. These companies will be encouraged in their innovation efforts by a measure providing for the extension of the research tax credit (CIR) to boost exports and innovation.
The EUR10bn additional tax burden on households in France will target the country’s richest. In accordance with the commitments of French President François Hollande, any general tax increase or one that would penalize the purchasing power of households has been ruled out.
A major tax reform will be proposed within the framework of the 2013 finance bill, to ensure that income from capital is taxed at the same rate as income from work. Income from capital, namely interest, dividends, capital gains from securities, will therefore be made subject to the country’s progressive income tax scale.
A solidarity effort will also be demanded from the wealthiest households by means of the introduction of a marginal income tax rate of 45% imposed on income in excess of EUR150,000. Tax breaks will also be capped under the plans.
The country’s wealthiest will also be asked to contribute to the effort by means of an exceptional 75% tax on income in excess of EUR1m per beneficiary, which will take into account other contributions already paid. The contribution will be applied for a period of two years, namely the time needed to redress the public finances.
The reform of the solidarity tax on wealth (ISF), which will re-establish the yield from the tax prior to the 2011 reform implemented by the previous government, will ensure a contribution from individuals with the largest assets.
Although an effort will be demanded from all taxable households in France via the non-indexation of the individual income tax scale in the bill, the most modest households will benefit from a credit mechanism (décote) ensuring that those whose actual income has not increased, remain exempt from taxation.
The taxation of capital gains from property will also be reformed to support the government’s plans to tackle the housing shortage and to combat the problem of land retention.
French Finance Minister Pierre Moscovici has recently presented to the council of ministers a communication pertaining to the broad budgetary and fiscal guidelines for 2013.
The council of ministers is due to adopt on September 28 the state budget bill for 2013, the first budget of the current legislature.
In accordance with electoral commitments, the 2013 finance bill, due to be followed by the social security finance bill on October 10, will enable the government to reduce the public administration deficit to 3% of gross domestic product (GDP) in 2013, from 4.5% in 2012.
The budget will be based on a 'realistic' growth forecast for next year of 0.8% of GDP.
Underlining the fact that everyone will have their part to play, the finance ministry said that redressing the country's finances will be achieved by adopting a fair split of the burden, and will involve EUR10bn in expenditure savings, EUR10bn in additional taxes on large corporations in France, and a EUR10bn contribution from households, notably the country’s most wealthy.
The ministry highlights the fact, however, that although two thirds of the recovery effort will be realized by means of tax rises in 2013, given the magnitude of the effort required, the government aims to ensure that over the course of the five year period there will then be a fair split between tax increases and spending cuts.
To ensure that the tax measures do not adversely affect either competitiveness or growth in France, the EUR10bn tax increase on businesses will involve limiting tax breaks currently benefiting the largest corporate groups. The possibility of deducting loan interest from corporate tax will therefore be limited within the framework of the 2013 budget, a measure affecting above all big companies.
Very small companies in France (TPE) and small- and medium-sized companies (PME) will see the measures that they benefit from preserved. These companies will be encouraged in their innovation efforts by a measure providing for the extension of the research tax credit (CIR) to boost exports and innovation.
The EUR10bn additional tax burden on households in France will target the country’s richest. In accordance with the commitments of French President François Hollande, any general tax increase or one that would penalize the purchasing power of households has been ruled out.
A major tax reform will be proposed within the framework of the 2013 finance bill, to ensure that income from capital is taxed at the same rate as income from work. Income from capital, namely interest, dividends, capital gains from securities, will therefore be made subject to the country’s progressive income tax scale.
A solidarity effort will also be demanded from the wealthiest households by means of the introduction of a marginal income tax rate of 45% imposed on income in excess of EUR150,000. Tax breaks will also be capped under the plans.
The country’s wealthiest will also be asked to contribute to the effort by means of an exceptional 75% tax on income in excess of EUR1m per beneficiary, which will take into account other contributions already paid. The contribution will be applied for a period of two years, namely the time needed to redress the public finances.
The reform of the solidarity tax on wealth (ISF), which will re-establish the yield from the tax prior to the 2011 reform implemented by the previous government, will ensure a contribution from individuals with the largest assets.
Although an effort will be demanded from all taxable households in France via the non-indexation of the individual income tax scale in the bill, the most modest households will benefit from a credit mechanism (décote) ensuring that those whose actual income has not increased, remain exempt from taxation.
The taxation of capital gains from property will also be reformed to support the government’s plans to tackle the housing shortage and to combat the problem of land retention.
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