TAX NEWS - June 2010

French Tax: French Audit Body Foresees Tax Hikes

In its latest report, the French Court of Auditors (la Cour des comptes) has blown the whistle on the country's financial situation, warning that both deficit and debt are continuing to rise. The report calls for immediate – and significant - action to be urgently taken to avoid disaster, including the introduction of further cuts in spending and, more importantly, a rise in taxes.

Presenting the report on the status and prospects of the country's public finances, a precursor to the pre-budget debate due to begin shortly, President of the Court of Auditors Didier Migaud explained that the state of the country's public finances deteriorated very seriously last year, and indeed at the beginning of this year. The situation is still reversible, Migaud added, provided that France takes immediate, tough, corrective action that is both credible and sustainable.

According to the report, the government's target of reducing the deficit to 3% of GDP by 2013 is not currently assured, neither is the sustainability of public finances in the medium term, unless further measures are taken. The Court of Auditors warns that unless additional measures are implemented, the deficit will remain in excess of 7% of GDP in 2011.

Highlighting the need to "reduce" the structural deficit, which is higher than the European average (currently 5.7% of GDP compared to 5% last year), by at least 1% of GDP a year, or EUR20bn, the government must not only further reduce spending but also increase taxes, the Court notes, adding that, while it takes time to reap the benefits of spending cuts, increasing fiscal revenue produces immediate results.

The Court advocates reducing existing tax breaks in France (niches fiscales et sociales) by as much as EUR10bn, rather than EUR5bn as proposed by the government, and also revising the decision to accord a reduced rate of value-added tax to the catering industry, which would enable the government to save in the region of EUR3bn.