National Assembly approves Sarkozy's tax reform

REUTERS - French President Nicolas Sarkozy’s plans to cut companies’ social welfare contributions has won backing in the lower house of parliament even though a key panel had earlier rejected the reform aimed at reviving the competitiveness of French firms.

Trailing his Socialist challenger Francois Hollande in the polls by a wide margin, Sarkozy aims to cast himself as best placed to help drag France out of an economic slump.

The reform is unpopular with voters as the cut in companies’ welfare contributions would be financed by raising the VAT sales tax to 21.2 percent from 19.6 percent.

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The National Assembly’s finance commission rejected the plan on Monday as the opposition was able to muster a majority, with many lawmakers in Sarkozy’s conservative UMP absent.

Prime Minister Francois Fillon later rallied UMP lawmakers and the house approved the measure as part of a bill updating the 2012 budget which would create the tax reform from Oct. 1.

The Assembly, where the UMP has a majority, still has to vote on the bill in its entirety before it can go to the opposition-dominated Senate. Even if the Senate rejects it there, the Assembly has the last word in a final vote.

Sarkozy’s government says the reform would create 100,000 jobs and save companies 13 billion euros, but it is deeply contested by the Left as unfairly increasing the burden on all taxpayers. Hollande has promised to repeal it if elected.

Sarkozy officially declared his candidacy on Monday, setting the stage for a tough battle for a second term in the two-round April 22-May 6 election with unemployment claims at a 12-year high and growth anaemic.