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France set to reform its 'unreadable' tax system

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France set to reform its 'unreadable' tax system
Protesters in Brittany riot in opposition to the ecotax on transport. This was just one of several protests in France in recent weeks against taxes and hikes in VAT. Photo: Fred Tanneau
16:57 CET+01:00
With much recent talk of France being at risk of a "social explosion" over the country's high taxes, its under pressure Prime Minister made a promise on Tuesday to overhaul the fiscal system, admitting that it was almost "unreadable" and "very complex".

French Prime Minister Jean-Marc Ayrault, facing a growing tide of anger over tax rises, vowed on Tuesday to overhaul the fiscal system.

Ayrault, who heads a left-wing government under strong pressure on several fronts, promised widespread consultations on how the tax regime should be reformed.

The move was welcomed by unions but business groups were wary and the centre-right opposition called the plan "surreal".

It was unclear how far the government would be willing to go, after President Francois Hollande earlier this month vowed to stick by his economic policies following a credit downgrade.

"The French tax system has become very complex, almost unreadable, and the French too often are not convinced that what they are paying is fair," Ayrault told business newspaper Les Echos in an interview published on Tuesday.

"The time has come for an overhaul, in all transparency," he said, promising a "profound dialogue" with trade unions and business groups.

Ayrault provided few details, but said the reform would not lead to further tax increases.

He suggested that one of the levies used to fund social and welfare spending, the CSG, could be combined with general income taxes, and said the government would not back away from an increase in value added tax due to take effect on January 1.

That increase - from 19.6 percent to 20 percent for the standard rate and from seven to 10 percent for the reduced rate - has drawn criticism from small businesses who fear it will cut consumption.

The government has come under concerted fire for plans for wide-ranging tax rises that along with major spending cuts are aimed at reducing France's budget deficit.

The Socialists have backed away from a number of proposed tax increases amid demonstrations, including a series of violent protests in Brittany against a new levy on heavy vehicles.

Officials said the controversial "ecotax" levy on truck transport, which was suspended after the protests, would not be applied as long as consultations on the overhaul were ongoing.

With France's economy stagnating and unemployment hitting record highs, Hollande's approval rating has dropped to the lowest level of any modern French leader.

The opposition lashed out at Ayrault's latest plan, with former budget minister Valerie Pecresse of the centre-right UMP calling it "surreal".

The leader of the UMP opposition, Jean-Francois Cope, said: "The priority is not to know if we are going to re-arrange taxes in one way or another, but how to lower them. We need to give people money."

Unions broadly welcomed the move, with Jean-Claude Mailly of the FO union calling it "a good initiative" that was worth discussing.

Lawmakers from the Socialist Party and their coalition partner the Greens also praised the idea, with the spokesman for Socialist deputies, Thierry Mandon, calling it "a real big bang".

"No government for a very long time has decided to overhaul the tax system," he said.

But the head of France's MEDEF employers' group, Pierre Gattaz, said business leaders were concerned that consultations would delay much-needed reforms.

Business groups have said France's high labour costs and complicated tax system are stifling investment.

"We will go the first time (to talks) but we will not stay if it's just to play (confidence game) Find The Lady on taxes," Gattaz said.

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