Juppe aims to give £3bn back in tax reform

 

THE French government is planning tax reforms aimed at making its highly complex system simpler, fairer and less burdensome for the low paid.

The Prime Minister, Mr Alain Juppe, went on national television last night to present the outline of a long awaited plan, which will put up to 25 billion francs (£3 billion) 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, to take effect over five years (1997-2002), will increase the threshold at which tax becomes payable and lift a further one and a half to two million people out of the tax net altogether. It will also cut the top rate of tax which, at 56.8 per cent, French officials increasingly recognise, is starting to drive some of the country's most enterprising individuals abroad. The wealth tax, however, will remain.

The value of the tax concessions is forecast to reach Ffr75 billion by the time the reform is completed, with the cost being partly recouped by an increase in the already high tax on petrol, and tax rises on 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 and senior parliamentarians, as well as to select French journalists - the early response was grudging. Many commentators pointed out that the amount being given back to the taxpayer (an average of Ffrl 780 francs, or £215, each) was considerably less than the amount already 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 presented yesterday.

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

Given that taxes on a trio of French passions - driving cars, drinking and smoking - will rise, the extent to which the reform will improve national morale must also be arguable. Moreover, many people, particularly in the professions and the old nationalised industries, could find their income tax bill rising 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 groups is only just beginning.