EU's Rehn says France should stop raising taxes

PARIS Sun Aug 25, 2013 4:31am EDT

European Economic and Monetary Affairs Commissioner Olli Rehn attends a news conference about the convergence report for Latvia at the European Commision in Brussels June 5, 2013. REUTERS/Laurent Dubrule

European Economic and Monetary Affairs Commissioner Olli Rehn attends a news conference about the convergence report for Latvia at the European Commision in Brussels June 5, 2013.

Credit: Reuters/Laurent Dubrule

PARIS (Reuters) - France has reached the point when it can no longer increase taxes without harming growth and costing jobs, the European Commission's economic chief Olli Rehn said in remarks published on Sunday.

Plans by Socialist President Francois Hollande to wring a further 6 billion euros out of the economy in taxes in the 2014 budget have angered businesses and households and prompted the IMF to warn that more tax rises could stifle a fragile economic recovery.

In an interview with weekly newspaper Le Journal du Dimanche, Rehn reiterated that proposed reforms by the government were going in the right direction, but were not far-reaching enough or being implemented sufficiently quickly.

When asked whether tax hikes should stop, Rehn said:

"Absolutely. The tax increases in France have reached their fateful point. Raising new taxes would break growth and weigh on employment," he said. "Budgetary discipline must come a reduction in public spending and not new taxes."

The French government on Friday rushed to assure tax-weary companies and consumers that a new form of green levy meant to encourage industries and households to cut energy consumption would not amount to new tax increases.

The announcement landed the same week taxpayers began receiving income tax bills, some of which have been inflated by past tax hikes or reductions in tax exemptions.

The French tax burden is already one of the heaviest in the world. At 44.2 percent of GDP, it ranks behind only Denmark and Sweden among the 34 members of the Organisation for Economic Cooperation and Development.

(Reporting by John Irish; Editing by Alison Williams)