France to cut tax as domestic economy shrinks

FRENCH Prime Minister Mr Alain Juppe will today announce Government plans for a tax cut next year, his office announced yesterday.

The announcement came as economic data showed that the trench economy shrank 0.4 per cut in the first quarter of the ear, highlighting the government's difficulties in cutting the budget deficit ahead of European Monetary Union.

Earlier yesterday, the head of the National Assembly's finance committee, Mr Philippe Auberger, said the tax reduction for next year would "probably" be in the order of 20 to 25 billion francs (£2.4 billion to £3 billion), adding that the government wanted to lower taxes by a total of FFr40 to Ffr50 billion francs ever two years.

He also said that, thanks to the tax cuts and budget savings, the French economy would grow more rapidly, since there will be n end to the psychosis experienced by the French, who are not consuming because they fear an increase in the payments they, have to make to the state".

"French purchasing power will rise in the next 12 or 18 months, which was not the case this year," he said.

The data, released by the national Statistics institute, showed consumer spending, hit by high unemployment which has sapped confidence, had fallen 1 per cent in the second quarter after rising 2.5 per cent in the first and contributed 0.6 percentage points to the shrinkage in gross domestic product (GDP).

Economists said the second quarter figures were disappointing and underlined the difficulties the government faced in reducing France's budget deficit to 4 per cent of GDP this year and 3 per cent next year from 5 per cent last year in preparation for European monetary union.

"This is quite alarming. Clearly this is going to weigh on the deficit problem," Credit Lyonnais economist, Mr Iain Lindsay, said.