Higher Taxes in France to Reduce Budget Deficit May Hamper EU Growth

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Higher Taxes in France to Reduce Budget Deficit May Hamper EU Growth
Higher Taxes in France to Reduce Budget Deficit May Hamper EU Growth

Higher Taxes in France to Reduce Budget Deficit May Hamper EU Growth

The Socialist-led government in France has imposed higher taxes to reduce the budget deficit; however, Olli Rehn, commissioner for economic and monetary affairs, in an interview with the French weekly Le Journal du Dimanche, said that this must come from a reduction in public spending and not from new taxes as it may have a great impact on the EU economy.

He admitted that tax levels in France had reached a “fateful point” and warned that any new taxes would “destroy growth and handicap the creation of jobs.” A major problem however France facing is unemployment at the country’s jobless total reached 3.279 million.

According to Olli Rehn a series of tax hikes since the Socialists took power 14 months ago which includes €33bn in new taxes this year could cause severe problems and even destroy growth and handicap the creation of new jobs.

France Mulling a Plan for Further Deficit Cuts

Olli Rehn’s statement has come when socialist President François Hollande and his Prime Minister Jean-Marc Ayrault are finalizing plans for deficit cuts and long-term pension reform. The two new plans, according to experts, in all probabilities impose new fiscal burdens on French businesses and households in 2014.

Though the French economy performed better than the expected 0.5 percent growth rate in the second quarter of 2013, its budget deficit has been a major issue for the European Commission. The French government is also mulling plans impose a “carbon” or “green” tax. The measure is aimed at pushing the national economy away from dependence on fossil fuels.

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France Will Have to Submit the Budget Proposal to the EU Executive

The recent development wherein under the EU’s revised rules on economic governance, member states must submit their budget proposals to the EU executive and ask for an opinion before actual adoption and execution. However, a major drawback in the rule is that the French government cannot be pushed to accept and execute the recommendations from the EU.

Even president Hollande in May this year said that the Commission cannot dictate to France what it has to do. It can simply say that France must balance its public accounts. He has been facing immense pressure from Brussels to bring down budget deficit and liberalize French labor market.

In May this year the European Commission gave two year extension to bring its deficit below the EU-required 3 percent of GDP.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com