Sarkozy hands business €10bn tax cut

The French government has decided to cut taxes, more specifically, a tax on fixed investments or the ‘taxe professionnelle’ for the ‘bigger’ enterprises. Each year, this has become a much bigger cost for these companies. Smaller corporations will receive a reduction in social costs if they hire new people.

The tax cut will amount to € 10 bn. In total, it will cost up to € 12 bn, but it will only be recovered for a small part by a new tax on fuel and energy.

Off Course, the companies are really pleased with this proposal, because there’s a big cost going away. On the other side, this measure is not that interesting for the government itself. Because of it, they can’t do as much efforts as before to reduce the country’s public deficit. This will rise to more than 8%.

The government hopes that this level stabilises in 2010. In order to do so, they will for example cut more than 30,000 jobs. Besides this last one, there are no other measures to restore the deficit in the next coming years. Although, economists say that they should think of some in order to decrease the rising debts, and not to end up as bad as countries as Italy and Spain.

But Nicolas Sarkozy, the president of France, has other plans. He also wants to insert an extra ‘welfare-to-work benefit’ for young people, which will cost about € 500 million a year.

I am not really pro or against this measure. I think it has both up and downsides.

It is indeed a good thing for the companies that they don’t have to pay this tax anymore. That way, I think corporations will be stimulated more to reserve money for new investments.

On the other hand, we recently have had a crisis and we still see some effects right now. Every government that helped the banks in their country from going bankrupt, has an enormous public deficit. So, if this measure comes through and the companies don’t have to pay this tax anymore, they lose a lot of income.

If the government can find new ways of receiving income, this tax cut can come through. And it will be a good thing. It is necessary that companies invest to stimulate the economy.

Source: The Financial Times – “Sarkozy hands business €10bn tax cut” –
29 September 2009
http://www.ft.com/cms/s/0/4c0da02a-ad0d-11de-9caf-00144feabdc0.html