Election ahead, Sarkozy announces French tax hike - Metro US

Election ahead, Sarkozy announces French tax hike

PARIS – In a big pre-election gamble, President Nicolas Sarkozy pledged Sunday to raise the consumption tax as a way to ease fees paid by employers, hoping to lower high labour costs and keep jobs in France.

Sarkozy went on national TV Sunday to announce his conservative government will increase the value-added tax by 1.6 percentage points, to 21.2 per cent, and raise fees on investment income.

The tax proposal, to be floated next month, comes as France has struggled to rein in a bloated state budget deficit, and boost job creation and economic growth — three months before its next presidential election.

Polls show the higher tax is unpopular, but Sarkozy — who has long depicted himself as a man of action — appears willing to gamble that in the end, the French will support a leader who takes tough choices to jolt France out of its lacklustre growth, high joblessness and hefty state debts.

Sarkozy, who turned 57 Saturday, trails Socialist nominee Francois Hollande in the polls. Sarkozy said he’s focusing on his job, and stopped short of announcing his candidacy — but hinted that the moment was coming.

“I have an appointment with the French people. I won’t avoid it, and frankly, it’s coming,” he said, mentioning he knows the deadline under the law for his candidacy if he intends to run: March 16. Most pundits expect he will.

The new tax revenues would let the state take over payment of some worker benefits now paid for by employers, helping to lower high labour costs for companies and make products made in France more competitive.

“We are lifting (employer) fees on jobs that could be taken out of the country, because we want to keep them in France,” Sarkozy said, adding the fee waiver will cost €13 billion ($17 billion). “If we want to increase salaries, we have to stop weighing them down by the fees that we load onto the backs of companies — that make companies flee our country, and penalize jobs.”

Leftist critics oppose the increased tax, insisting that lower-income people will bear an unfair share of it.

Sarkozy said the government also plans a 0.1 per cent tax on financial transactions to take effect in August, with a goal of raising €1 billion a year. He said he hoped the measure would set an example for other countries.

Many people in France, a pillar of the euro zone, sensed the shockwaves from Standard & Poor’s downgrade of French sovereign debt rating last month by a notch from AAA to AA+ — highlighting the breadth of Europe’s debt crisis and dealing a blow to French morale.

In a bid to show his government’s spending cuts were having an effect, Sarkozy said the final tally of the state budget deficit in 2011 could come in as low as 5.3 per cent — down from 5.7 per cent previously estimated.

“I think I can tell the French people that the efforts the have made … have borne fruit,” Sarkozy said. “The financial crisis is abating. Europe is no longer on the edge of the abyss.”

The interview was aired simultaneously on at least five TV networks — and the three main cable news channels involved played it up throughout the day Sunday.

Marine Le Pen, the sharp-tongued candidate of the far-right National Front party, all but accused Sarkozy of being a washout — and suggested the TV appearance wouldn’t stanch his decline.

“He sure needs it,” she told a party rally in the southern city of Perpignan. “The only problem with Nicolas Sarkozy’s shows is that they’re like diets: Each attempt works less well than the previous one.”

“I fear the French have already wished Nicolas Sarkozy a happy retirement,” she added.


Sylvie Corbet contributed to this report.

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