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France

France in €14bn tax shortfall as forecasts prove wildly off-base

© Afp

Text by FRANCE 24

Latest update : 2014-05-29

The French government is facing a €14 billion shortfall in its public finances after overestimating a projected increase in tax revenues for the last financial year by almost half.

French President François Hollande has raised income taxes, VAT (value-added tax) and corporate taxes since he was elected two years ago.

France's Court of Auditors said Wednesday the income from all three taxes amounted to an extra €16 billion in 2013 – just a little more than half the government's forecast of €30 billion in extra income to be generated by the new taxes.

The Court of Auditors said the forecast for 2013's tax revenue was so grossly overestimated that it casts doubt on the reliability of its forecast for this fiscal year.

Government tax revenues have been increasing over the past four years but at a much slower rate than expected.

"If there is a gap, it is because the growth levels we had anticipated were not reached," said government spokesman Stéphane Le Foll.

The French government expected growth in 2013 to reach 0.8%, whereas the latest figures put the growth rate at 0.3%.

Hollande's Socialists have blamed lower taxes on some businesses for the lower revenue levels, but a drop in household spending has also brought in less VAT revenue.

"They (the Socialists) had to implement austerity measures and significant tax hikes when they got to power in 2012," said economist Bruno Ducoudre of the French Economic Observatory, or OFCE. "This, in turn, had a negative effect on household incomes and consumption, which isn't good for employment. It's a bit like a dog chasing his own tail." 

The main opposition UMP party has cited the latest figures as proof that overtaxing actually causes tax revenue to fall.

"The more you raise taxes, the more you send a signal to households to save money in order to pay their taxes," said former budget minister Eric Woerth of the UMP.

The shortfall revelations come a week after French Prime Minister Manuel Valls appeared to criticise the Elysée Palace's reliance on hiking taxes by saying "too much tax kills tax".

Valls unveiled a plan earlier this month to exempt almost two million of the country’s poorest households from paying income tax while lowering taxes for more than a million more.

Justifying the move, Valls said that the reform would boost the country’s stagnant economy by increasing purchasing power.

 

Date created : 2014-05-28

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