Minister says no to VAT rate rise

THE FRENCH government has ruled out an increase in value added tax as a way of bringing in more money and cutting the country's budget deficit.

Finance minister François Baroin is expected to present a range of cost-saving proposals to President Sarkozy and prime minister François Fillon tomorrow.

He told RTL that a "political choice" had been made not to increase the tax burden on individuals and businesses, adding that doing so would have been "the easy solution". Instead, the government would be looking at spending cuts.

He said: "We will not touch corporation tax, we will not touch income tax, we will not touch social charges and we will not touch VAT."

The current rate of VAT is 19.6% in France - with a reduced rate of 5.5% for some items. The UK charges 20%, Belgium 21% and Denmark 25%.

President Sarkozy called ministers back from their holidays last week for an emergency meeting to discuss budget cuts aimed at slashing the French deficit and reassuring stock markets.

François Baroin and budget minister Valérie Pécressewill present their proposals to the president and prime minister tomorrow, ahead of a full cabinet meeting next Wednesday.

Economic growth in France was flat in the second quarter of 2011, according to new figures from the official national statistics body Insee. President Sarkozy will today meet German chancellor Angela Merkel to discuss the eurozone debt crisis.

Meanwhile, an Ifop poll for Sud-Ouest Dimanche newspaper found 82% of people are worried about the budget deficit.

More than half of respondents wanted the reduced 5.5% VAT rate for restaurants to be scrapped, and almost a third said overtime should be taxed at the full rate.

The Socialist party's spokesman on financial affairs, Michel Sapin, said: "France has not exited the financial crisis. The government needs to revise its growth estimates for 2012 and announce immediate measures to reduce the deficit."