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.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Arts and Entertainment
musicOfficial chart could be moved to accommodate Friday international release day
Sport
Wes Brown is sent-off
football
News
i100
Sport
Italy celebrate scoring their second try
six nations
Sport
Glenn Murray celebrates scoring against West Ham
footballWest Ham 1 Crystal Palace 3
Arts and Entertainment
Drake continues to tease ahead of the release of his new album
music
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

Recruitment Genius: Bookkeeper / Office Co-ordinator

£9 per hour: Recruitment Genius: This role is based within a small family run ...

Recruitment Genius: Designer - Print & Digital

£28000 - £32000 per annum: Recruitment Genius: This Design and marketing agenc...

Recruitment Genius: Quantity Surveyor

£46000 per annum: Recruitment Genius: This property investment firm are lookin...

Recruitment Genius: Telesales / Telemarketing Executive - OTE £30k / £35k plus

£18000 - £35000 per annum: Recruitment Genius: This company specialises provid...

Day In a Page

The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower