Tax rises in France have reached 'fatal' level, warns EU official

Olli Rehn urges cuts to spending as François  Hollande seeks to reduce deficit

Paris

Tax increases imposed by the Socialist-led government in France have reached a “fatal level”, the European Union’s commissioner for economic affairs said today.

Olli Rehn warned that a series of tax hikes since the Socialists took power 14 months ago – including €33bn in new taxes this year – threatens to “destroy growth and handicap the creation of jobs”.

His warning came as President François Hollande and his Prime Minister Jean-Marc Ayrault are finalising plans for deficit cuts and long-term pension reform which will almost certainly impose new fiscal burdens on French businesses and households in 2014.

The government has also announced that it plans to press ahead with a “carbon” or “green” tax to try to push the French economy away from dependence on fossil fuels.

In a speech to close the Socialist Party “summer university” in La Rochelle, Mr Ayrault promised that the green tax would take the form of a fiscal “reshuffle”, rather than an extra layer of taxation. France’s overall tax burden, running at around 48.5 per cent of GDP, would not rise, he promised.

Since he came to power, President Hollande has kept his electoral promise to attack French deficits and accumulated debt. He has done so, however, almost entirely by tax increases rather than by cuts in a state apparatus which swallows 56.6 per cent of the country’s GDP. Mr Hollande pledged in May that the pace of tax hikes would slacken in 2014 and would cease almost entirely in the period 2015-2017. Steep cuts in state spending would be imposed, he said, to bring France’s annual deficit down to 3 per cent of GDP in 2015 – meeting a target set by Brussels.

Since then, however, it has emerged that final budget plans for 2014 will include at least €6bn in tax rises. This figure does not include the impact of a programmed rise in the basic rate of VAT from 19.6 per cent to 20 per cent from January next year. Plans for reforms to the state pension and health systems, both in chronic deficit, will be finalised this week. They are likely to include a rise in a levy on household payments of up to 0.5 per cent.

Mr Hollande’s 75 per cent “temporary” tax on incomes over €1m – also blocked by constitutional objections – may also finally take effect in 2014.

In an interview with Le Journal du Dimanche, Mr Rehn praised the “structural reforms” introduced under Mr Hollande, including a shift towards more flexible rules on hiring and firing. But Mr Rehn said that the reforms were not sufficiently bold or rapid.

He called on France to increase its competitiveness by reducing the tax burden on business, to remove barriers protecting services and professions, and to abolish the “quasi-monopoly” of the state railway and electricity companies. Most of all, he said, France could not afford to increase its level of taxation. “Tax rises have already reached a fatal level,” he said. “Higher taxes would destroy growth and handicap the creation of jobs. Budgetary discipline must now depend on cuts in public expenditure, not on new taxes.”

Mr Rehn’s comments came as France, and Europe, enter a critical period. The tentative signs of recovery in the eurozone could strengthen or evaporate in the next four months depending on the continuing strength of Germany but also, perhaps more importantly, on whether confidence returns to France.

Unexpectedly, French economic activity grew by 0.5 per cent in the second quarter of this year after two quarters of decline. This was a performance almost as strong as that of the United Kingdom and Germany.  

But the economic picture is blurred. Consumption in France is recovering but is unpredictable. Manufacturing, after a boom in April, has started to fall away again. The next unemployment figures, due on Tuesday, will be poor but François  Hollande remains convinced he can deliver his promise that the tide of increasing joblessness will turn by the end of the year.

News
people And here is why...
Arts and Entertainment
Amazon has added a cautionary warning to Tom and Jerry cartoons on its streaming service
tv
Voices
voicesBy the man who has
Sport
Arsene Wenger tried to sign Eden Hazard
footballAfter 18 years with Arsenal, here are 18 things he has still never done as the Gunners' manager
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
The new Windows 10 Start Menu
tech
Arts and Entertainment
Kristen Stewart and Robert Pattinson star in The Twilight Saga but will not be starring in the new Facebook mini-movies
tvKristen Stewart and Stephenie Meyer will choose female directrs
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
books(and not a Buzzfeed article in sight)
News
William Hague
people... when he called Hague the county's greatest
News
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
Arts and Entertainment
Twerking girls: Miley Cyrus's video for 'Wrecking Ball'
arts + ents
Arts and Entertainment
Ed Sheeran performs at his Amazon Front Row event on Tuesday 30 September
musicHe spotted PM at private gig
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

General Cover Teacher

£120 - £125 per day: Randstad Education Luton: Are you looking for part time/ ...

SEN (SLD/PMLD) Teacher

£120 - £130 per day: Randstad Education Chelmsford: Are you a quailed Teacher ...

General Cover Teacher

£120 - £125 per day: Randstad Education Luton: Currently looking for teachers ...

SEN Teaching Assistant Runcorn

£50 per day: Randstad Education Cheshire: SEN Teaching Assistant EBD , Septemb...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?