French Prime Minister Manuel Valls on Friday announced an ambitious plan to exempt almost 2 million of the country’s poorest households from paying income tax while lowering taxes for more than a million more.
“The measure is going to benefit more than three million homes. There will be 1.8 million households that no longer have to pay income taxes,” Valls said on French radio station Europe 1.
The reform is set to come into effect this fiscal year.
The reform will benefit single individuals with a gross income of €14,000, couples with a combined income of €28,000 and families with three or more children who have a total income of €38,000.
“A retired couple who each receive a pension of 1,200 euros [per month], will see their income tax go from about 1,000 euros [per year] to about 300 euros,” Valls said. “A single person earning minimum wage will be exempted from paying taxes altogether.”
“A couple with two children and a combined gross income of 3,600 euros per month will be exempt from paying taxes, when they would have otherwise paid around 700 euros,” he added.
While the reform comes as good news to lower-income households, it also means that the government will be losing out on an estimated €1 billion in tax revenue.
Justifying the move, Valls said that the reform would boost the country’s stagnant economy by increasing purchasing power.
“It’s a billion euros less in taxes, a billion euros more in purchasing power for the French, particularly for [those with the lowest incomes],” he said. “The measure will be, in large part, financed by cracking down on fiscal fraud.”
Valls added that the government had already budgeted €500 million to help cover the lost revenue.
The reform, however, may risk placing further strain on France’s already tight finances, as President François Hollande struggles to fulfil his promise to cut the public deficit to an EU-mandated limit of 3 percent of economic output by next year. That deadline itself was previously pushed back by two years.
Hollande’s government has pledged to make €50 billion in budget cuts over the next three years in an effort to honour France's commitments to reduce the deficit.
(FRANCE 24 with AFP, REUTERS)
Date created : 2014-05-16