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France

Sarkozy to announce tax hikes in presidential address

Text by News Wires

Latest update : 2012-01-29

In a televised address on Sunday, French President Nicolas Sarkozy is expected to announce tax hikes including a 1.6% rise in the value-added sales tax on goods and services, a move designed to shift the tax burden from employers to consumers.

AFP - French President Nicolas Sarkozy will announce tax rises Sunday, including a hike of 1.6 percentage points in value-added sales tax on goods and services, government sources said.

The aim is to shift the burden of paying for social security from employers to consumers in a reform, condemned by opposition socialists, that Sarkozy's centre-right government wants to push through before elections in April that he is tipped to lose.

The sources did not specify whether only the top rate of VAT, currently at 19.6 percent, would be affected. Other rates, including those on products considered essential, stand at 7.0 percent and 5.5 percent.

Other taxes affected cover revenue from investments and property.

Under the reform, the increase in value-added tax will be matched by a decrease in employers' payroll contributions, thus helping them compete with producers in lower income economies.

Sarkozy, who is to announce the tax rise in a television appearance Sunday, had already signalled in his end-of-year address to the nation that the measure, long discussed in France but often pushed back, would go ahead.

He said social charges "should not weigh principally on labour, which is so easy to outsource. We should reduce pressure on jobs and seek a contribution from imports, which compete with our products through low labour costs."

But some economists have warned against the reform, which they say would hit domestic consumer demand, the main motor of the flat-lining French economy.

And Sarkozy's main challenger in the upcoming election, Socialist candidate Francois Hollande, has said he would not enact the measure, even though some of his supporters have championed it in the past.

Members of Sarkozy's own UMP party also fear it will lose him votes in the April poll. A previous attempt to introduce the measure at the beginning of his five-year term is blamed for the loss of dozens of UMP seats in 2007 parliamentary elections.

Date created : 2012-01-29

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