France taxes rich to meet budget targets

France's president Francois Hollande (AFP Photo/Lionel Bonaventure)
French President Francois Hollande has announced plans to increase taxes on businesses and the wealthiest households raising $9 billion to reduce the deficit.

­The plan includes a 75% tax rate for income of more than €1.3 million, which was cancelled by his predecessor Nicolas Sarkozy. The wealth tax is expected to raise €2.3 billion. Another €1.1 billion would come from a special tax on banks and oil companies.

Besides that, French companies with revenues of €250 million or more will be asked to pay a portion of their corporate taxes early.

On Monday, auditors from France’s independent Court of Accounts warned that the government will need between $7.5 and $12.5 billion in savings this year to meet its 2012 target of a deficit equal to 4.5% of GDP. It also needs around $33 billion in savings over the next two years in order to slash the 2013 budget deficit to 3%.

This effort to reduce indebtedness is challenging as growth forecasts were earlier revised downward to 0.4% for 2012 and 1% in 2013, compared to earlier estimates of 0.5% and 1.7% respectively. Meanwhile France’s current debt level accounts for 89.3% of GDP and it is expected to surpass 90% by the end of the year.