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Controversy over tax for unemployment benefits

Latest update : 2008-08-29

France's political establishment is divided over President Nicolas Sarkozy (right) and High Commissionner for Solidarity Martin Hirsch's (left) proposed €1.5 billion unemployment aid package funded through a 1.1% levy on capital gains.

French president Nicolas Sarkozy’s plan to raise taxes on capital gains to finance a new form of unemployment benefits has drawn positive reactions from the opposition and ruffled feathers in his own party and in the business community.

Sarkozy unveiled a €1.5 billion government aid programme for the unemployed on Thursday, to be financed through a new 1.1% tax on capital revenue. "I find it normal that, in a solidarity effort, everyone contributes to help pull more than three million  of our fellow countrymen out of poverty or exclusion", he said.

The French parliament will discuss the plan, called ‘Active solidarity revenue’ (RSA), as part of the 2009 budget in the coming months and the political debate around the scheme has already started.

Although initiated by Sarkozy's conservative government, the proposal has attracted criticism from the ruling UMP party. "I am surprised that we raise taxes to finance the RSA", said former budget minister Alain Lambert. "If we had done a clean-up in the considerable amount of French social expenditure, we could have found internal resources to fund it."

Meanwhile, the Socialist opposition has welcomed the redistributive nature of the scheme. Socialist party leader François Hollande acknowledged the "legitimacy of financing lower incomes through a contribution from the richest".

However, Alain Tourenne, the Socialist chairman of a regional authority that has been experimenting with the RSA, said that it would "target middle class households if they have set some money aside". He charged that wealthier taxpayers will escape the new levy thanks to a cap on income tax introduced by Nicolas Sarkozy in the summer of 2007. But the detailed workings of the new tax have yet to be set.

The French business community, for its part, is looking at the plan with caution. Laurence Parisot, president of the Medef employers' body, hailed the RSA as a "good plan" but described the associated tax raise as "the wrong method" to achieve it.

The proposed plan includes a 1.1% tax on revenues from investments in stocks and property to cover the estimated €1.5 billion annual cost of RSA payments.

Encouraging part-time work for the unemployed

The proposed aid plan is being touted as a move to combat France’s stagnating purchasing power and encourage the unemployed to seek part-time work.

The new aid program aims to help both the unemployed and poor workers and seeks to provide an alternative to existing French government aid programmes such as the RMI (aid for the unemployed), the PPE (aid for those employed with low salaries) and the API (aid for single-parent families).

Under existing aid schemes in France, it would sometimes be more lucrative for an unemployed person to stay out of a job and receive government aid rather than to take up part-time employment.

As they lose unemployment benefits and face the extra costs of transportation and childcare, many of those who return to work end up with less revenue than they had when they were unemployed. Under the new plan, workers would still get state benefits after finding a low income job.

The government hopes to generalise the RSA plan by mid-2009. In the long run, it could replace the three existing aid programmes.

Date created : 2008-08-28