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France: New Austerity Measures

(Nov. 16, 2011) On November 7, 2011, the French Council of Ministers announced new austerity measures aimed at further reducing the public debt and achieving financial balance by 2016. The government hopes to save €17.4 billion (about US$23.5 billion) during the period 2012 to 2016, in order to cut the debt by €65 billion ($87.75 billion). The government would like to reduce the public deficit to 4.5% in 2012, 3%in 2013, and achieve a financial equilibrium by 2016, despite a lower estimate for economic growth in 2012. The government had hoped for 1.5% economic growth in 2012, but recently had to lower the projection to 1%. (Conseil des Ministres , Le plan d'équilibre des finances publiques, Portail du Gouvernement (Nov. 7, 2011)).

The proposed key austerity measures are:

· Reduction of the state budget by an additional €500 million (about US$675 million);

· Reduction of health care expenses by an additional €700,000 million (about US$945 million);

· Reduction of the office space occupied by the various public administrative agencies by 5% over three years;

· Acceleration of the sale of public properties by the government to reach an amount of €500 million per year;

· Full implementation of the retirement reforms in 2017 instead of 2018;

· A decrease or abolition of certain tax deductions or tax credits to save an additional €2.6 billion (about US$3.6 billion) by 2016;

· A 5% increase in the corporate tax rate for corporations with an annual revenue exceeding €250 million (about US$337.5 million) for the fiscal years 2012 and 2013, or until France's public deficit returns to below 3%;

· A freeze on the thresholds of the brackets of individual income tax, wealth tax, and succession duties until the 3% deficit target is met;

· Increase from 19% to 24% of the flat withholding rate (prélèvement forfaitaire libératoire) that applies to dividends and interest;

· An increase of the reduced VAT rate from the current 5.5% to 7% on goods and services that are not classified as “first necessity items,” such as, for example food, energy products, and products and services for disabled persons. This new rate would be applied to restaurant meals, books, public transportation, and major repairs to housing;

· A freeze on the salaries of the President of the Republic and the Ministers until the return to the public finance balance. The government also calls on CEOs of major corporations to do the same; and

· A 5% decrease of the reimbursement threshold for electoral campaigns expenses and aid to political parties. (Id.)