French court rejects part of Hollande's tax-cutting effort

PARIS Wed Aug 6, 2014 5:18pm EDT

French President Francois Hollande holds a new conference in the city hall of Liege, August 4, 2014.  REUTERS/Laurent Dubrule

French President Francois Hollande holds a new conference in the city hall of Liege, August 4, 2014.

Credit: Reuters/Laurent Dubrule

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PARIS (Reuters) - A top French court rejected a plank of President Francois Hollande's economic reform package on Wednesday, just as a coalition partner threatened to quit the government in another spat over legislation.

Hollande has staked his credibility on efforts to jump-start economic growth and job creation in Europe's second-largest economy by slashing 30 billion euros ($54 billion) off payroll taxes paid by firms.

Parliament has already passed this year's public funding bill. But France's Constitutional Court unexpectedly barred a portion of the reform, which had aimed to reduce the payroll tax burden of low-income workers.

The Socialist Hollande and his more popular prime minister, Manuel Valls, had folded in the measures after left-wing lawmakers accused them of leaning too far toward the business community.

The Court ruled that the measure, which would have benefited 7.4 million private- and public-sector workers for a cost of some 2.5 billion euros, was unfair.

"A single welfare fund would still ... have had to fund the same services for all of its beneficiaries despite the absence of contributions by nearly a third of them," the Court said in a statement after its ruling.

The government, which has also promised to cut income taxes for low- and middle-income workers, is likely to seek to resurrect the low-income tax cuts in the 2015 public spending bill. The payroll tax measures were due to go into effect in 2015.

Separately, the Radical Left Party - which has three ministers in Hollande's government - threatened to quit over a reform that aims to halve the number of regions in France's administrative map.

Radical Left Party chief Jean-Michel Baylet demanded stronger representation for elected officials in rural counties, where his party has strong support. The government lost its other junior coalition partner, the Greens Party, in April.

"If we are not heard, if we reach a breaking point then, yes, we will face up to our responsibilities and leave the government," Baylet told Le Nouvel Observateur news magazine.

While Hollande's Socialists would retain a majority in parliament without the Radical Left party, their departure from government would underline the government's unpopularity and shrink the parliamentary majority.

(Reporting by Emile Picy and Nicholas Vinocur; Editing by Ruth Pitchford)

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