The Paris government is planning to cut the amount that French companies pay in contributions to the state for health-care and pensions and make up the lost income with higher value-added tax on purchases.
The plan to raise sales taxes before April’s presidential election did not find favour on French streets. One woman complained: “Consumers will pay more for what they buy as the sales tax increases, which will reduce our purchasing power. That is not good news, and it’s not a very good start to the year.”
Government ministers are spinning this as a “social VAT” increase on the basis that France’s generous social welfare system can no longer be borne mainly by contributions from wages and businesses.
Finance Minister Francois Baroin said: “We are in an unprecedented crisis with economic and budgetary consequences on a national and European level, and we have to deal with all the consequences: on labour costs, on taxes and costs which increase prices.”
He denied that the reason for the changes is political and said they are aimed at boosting growth.
There is no word yet on how much VAT will rise by. For some items it is already as high as 19.6 percent.
At the start of the year VAT rates for so-called essential products and services such as food and energy went up from 5.5 to seven percent.