A VAT rise to finance social security will be put in place in the next few months, says Budget Minister Valérie Pécresse.
“We are going to bring in a ‘social VAT’, and do it before the presidential elections,” she told radio station France Info.
The idea is the extra tax will allow for a corresponding lowering of social charges on work (paid by businesses), which are currently the main source of social security funding.
The minister said the plan will be debated at a “social summit” on January 18 at the Elysée.
President Sarkozy had expressed support for such a scheme in his New Year speech, saying it would “lighten the pressure on work and make the imports that compete with our products because of cheap labour contribute financially”.
This is because VAT is levied on all products of a given kind, whether made in France or not. The “social VAT” would probably affect any goods and services currently at the maximum 19.6% rate.
The campaign manager for Socialist presidential candidate François Hollande, Michel Sapin, said the idea is an “economic error”, because it would affect people’s purchasing power. The government, on the other hand, thinks it will make business more competitive and so boost growth and jobs.