By SARAH DiLORENZO, Associated Press
PARIS (AP) — President Francois Hollande's new Socialist administration is starting to shake up French policy on whom to tax and how to spend —changes that would effectively roll back much of what ex-President Nicholas Sarkozy and his center-right government accomplished.
Under an amended 2012 budget being pushed through Parliament, wealthy people and large companies are likely to see more of their earnings taxed, while government spending has remained largely untouched. The budget is a clear contrast with the rest of Europe, where austerity cuts are being introduced to reduce deficits. The budget also contains provisions that would sweep away efforts by the previous administration to shake up labor market rules that favor workers over businesses.
Business leaders are worried that the first major act as France's new leader will set the tone for the rest of his time in office.
Among the measures in the revised budget, which the lower house passed on Friday and the upper house is currently debating, are:
— scrapping of tax breaks on overtime
— a one-time extra wealth tax on people with more than €800,000 in assets
— scrapping of a law that would have raised the sales tax while decreasing employer contributions to the state benefit system
— a new tax on company dividends
— a new tax on stocks of petroleum products
— new taxes on some financial institutions and an increase in the financial transaction tax
Debate over the budget in the parliament last week was fierce as members of previous President Nicolas Sarkozy's conservative party fought in vain against a roll-back of much of what they had accomplished over the past five years. At one point, the session was even suspended so the deputies could cool down. The Senate is scheduled to vote on the budget on Friday; both houses are expected to approve a final version next week.
The new government claims the budget measures show that it is serious about reducing the country's deficit. It has already pledged to balance the country's budget by 2017. However, it did not back up the tax hikes with any significant cuts in government spending.
Companies say that the new taxes send out the wrong message: that France is closed for business.
A major part of the France's problem is that its $2.4 trillion economy is stagnant — the government expects just a 0.3 percent increase in gross domestic product this year. Growth is expected to pick up a bit next year — the government has predicted 1.2 percent growth, though others say that's optimistic. As growth has slowed, France's debt-to-GDP ratio has exploded, rising 30 percent since the crisis began to 89.2 percent this year.
So far, Hollande's push to cut the deficit appears to have been received well. Earlier this month, the country borrowed €6 billion in short-term debt at negative interest rates for the first time. Last week, a long-term debt auction also saw borrowing costs fall.
But analysts and business leaders say that chipping away at France's deficit by raising taxes is not a long-term plan. Creating incentives for businesses is going to have to be part of any strategy to restart growth. And new or higher taxes could have the opposite effect.
Guillaume de Fondaumiere, the co-CEO of video game company Quantic Dream which has 170 employees, said he and his fellow businessmen were growing weary of being France's boogeymen.
"We're not expecting medals but a minimum of consideration and help that would allow us to give our best," said de Fondaumiere.
One official from a CAC-40-listed company said the budget sent a message that the government doesn't like business and it doesn't like rich people. He would only speak candidly about the budget on condition of anonymity.
The French government hasn't been shy about saying that the budget bill is targeting the rich. This is an administration led by Hollande, who once famously said he did not like the rich.
Finance Minister Pierre Moscovici defended it in parliament as a law that "again puts justice at the heart of our tax system."
Justice is the watchword of Hollande's new team. His administration says it's committed to balancing the budget but that how they do it — by making the rich pay more and maintaining programs for the poor — will be just as important as that they're doing it.