Juppe cuts taxes to boost French morale

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The Independent Online
France was last night due to announce tax reforms aimed at making its highly complex system simpler, fairer and less burdensome for the low- paid.

The French Prime Minister, Alain Juppe, went on national television last night to present the outline of a long-awaited plan, which will put up to 25bn francs back into French pockets from 1997. It also has the wider aim of improving national morale and increasing the depressed purchasing power of French consumers in the hope of fostering economic growth and fending off incipient labour unrest this autumn.

The reform, which will take effect over five years (1997-2002), will increase the threshold at which tax becomes pay- able and lift up to two million more people out of the tax net. It will also cut the top rate of tax which, at 56.8 per cent, French officials recognise, is driving some of the country's most enterprising individuals abroad. The wealth tax will remain.

The value of the tax concessions is forecast to reach Fr75bn by the time the reform is completed, with the cost being partly recouped by an increase in taxes on petrol, alcohol and cigarettes.

Although Mr Juppe went to unusual lengths to ensure a favourable reception for the reform - presenting it in advance to a clutch of ex-prime ministers, senior parliamentarians and selected French journalists - the early response was grudging. Many commentators said that the amount being given back to the taxpayer (an average of Fr1,780, or pounds 223) was considerably less than what was taken away by the Juppe government in its first year in office. The 2 per cent rise in VAT just over a year ago - to 20 per cent - has been a particular bone of contention and is not affected by the measures.

The total effect of the reform on purchasing power - and thus on economic growth - may also be less than Mr Juppe would like taxpayers to believe. The tax burden in France is relatively low. It is not tax, but the equivalent of national insurance contributions, that has hit French employees hardest.

Many people in the professions and old nationalised industries, could find their income tax bill rises after the reform. The rationalisation proposed by Mr Juppe includes removing a wide assortment of tax breaks peculiar to individual groups. The battle with these powerful factions is only just beginning.