Socialist French President Francois Hollande has delivered on his promise to put the burden of closing the deficit on the wealthy by introducing new top rates of tax and bringing in more revenue from corporations.
France's first budget since Hollande's election in May, announced following a meeting of the cabinet this morning, included a 75 per cent marginal income tax rate for those earning more than €1m a year and a 45 per cent rate on income above €150,000. The 75 per cent rate is expected to be in place for two years.
Meanwhile the elimination of various exemptions and deductions will see big companies pay more to the treasury. Together, the measures were designed to bring in an additional €20bn without increasing the burden on 90 per cent of taxpayers, the government said. Another €10bn will be raised through a freeze in spending.
Prime Minister Jean-Marc Ayrault said it was a "fighting budget to get the country back on the rails", adding: "It is a budget which aims to bring back confidence and to break this spiral of debt that gets bigger and bigger." France's debt stood at 91 per cent of gross domestic product between April and June.
The government predicted that the currently stagnant economy would grow 0.8 per cent next year, then 2 per cent every year between 2014 and 2017. It pledged to cut the deficit from an expected 4.5 per cent of GDP this year to 3 per cent next year. Its aim is to then reduce the deficit to 0.3 per cent by 2017 – though Hollande had previously said it would be wiped out by that date.
Overall the budget marks France's single harshest belt-tightening exercise for three decades. The increased taxes on top earners have been expected for months and have led to fears that some of France's wealthiest citizens would flee the country to avoid paying up – with some moving to neighbouring Belgium