France announces income tax cut of $1.5 billion, benefiting more than five million households

PARIS (Reuters/AFP) - The French government will cut income tax by 1 billion euros (S$1.5 billion) in its 2017 Budget, bringing total income tax cuts since 2014 to 6 billion euros, the Finance Ministry said on Friday (Sept 9).

The tax cut, coming before an April presidential election, would benefit more than five million households with an average gain of nearly 200 euros, the ministry said in a statement.

The government did not immediately say how it would finance the tax cut.

France's government also unveiled on Friday plans to lower taxes on companies.

The gesture to households would "take the form of a reduction in income taxes by 20 per cent for the middle class," Finance Minister Michel Sapin told AFP.

Mr Sapin also said that the headline tax rate for small and medium-sized companies would be reduced to 28 per cent - the European average in 2017 and 2018 - and for all companies from 2020.

That is a drop from the current headline rate of 33 per cent, although small companies benefit from a lower rate on a certain amount of profits.

However, Mr Sapin said that despite the tax cuts France would honour its pledge to the EU to reduce its public spending deficit to 2.7 per cent of gross domestic product in 2017.

"We've made that promise to parliament and EU authorities and we're going to keep it," said Mr Sapin. The announced cuts to income tax, coming just over seven months from the presidential election, would take the total reduction since 2014 to six billion euros.

Polls show that President Francois Hollande, who has not announced his intentions regarding a run for a second term in office, and other prominent Socialists would face an uphill battle to make it to a runoff vote.

Criticised for sharp tax hikes at the start of his five-year term, Mr Hollande has since turned towards a gradual reduction in tax rates, although the French economy has posted only modest growth and unemployment remains near record highs.

Mr Sapin also announced a change allowing all retirees to deduct expenses for at-home services, a change which should benefit 1.3 million households at a cost of a billion euros.

In addition, Sapin announced an increase in the tax credit for companies with low-wage employees, which he said would put an extra 3.3 billion euros in their accounts.