March 15, 2012 / 7:21 PM / 5 years ago

French candidates spook industry with "fiscal fireworks"

4 Min Read

PARIS (Reuters) - French presidential candidates' enthusiasm for raising taxes has bewildered the struggling industrial sector, an industry body said on Thursday, accusing Nicolas Sarkozy and his main rival of ignoring the hard truth that spending must be cut.

Less than six weeks before a presidential election, President Sarkozy and his Socialist challenger Francois Hollande have come out with a series of proposals to raise extra income for the cash-strapped state.

"What we're seeing is fiscal fireworks," Pierre Gattaz, president of GFI industrial lobby, told journalists. "It's absolutely terrifying for us business people."

While promising tax hikes in an election campaign could spell political suicide in many countries, in France's election candidates are hoping that it lends credibility to their fiscal policies without spooking voters with commitments to cut spending.

Without citing any individual candidate, Gattaz accused the contenders of trying to upstage each other with myriad proposals and clouding the fiscal environment for companies as the economy shows tentative signs of emerging from a brief downturn.

Battling to shake off his image as a friend of the rich, Sarkozy called on Monday for a tax on citizens who seek refuge abroad from France's high rates. He has also pushed through an increase in the VAT sales tax and proposed a minimum tax on big-listed companies.

Hollande, who has a comfortable lead in the opinion polls, has meanwhile proposed a top tax rate of 75 percent on people earning over a million euros a year. He also wants to cut the corporate tax rate for small companies to 15 percent but raise the rate for big companies to 35 percent.

With Sarkozy and Hollande promising to bring down the public deficit, taxation has emerged as a major theme of the election, with both looking for extra revenues while being wary of cutting back on high state spending.

"None of the candidates is talking about deficit reduction. They only talk about taxes. None are talking about savings," said Gattaz. "We can't fix the deficits with tax increases alone. That's a cowardly way to fix the problem."

Sarkozy and Hollande have both committed to cutting the deficit to an EU-imposed limit of 3 percent of gross domestic product next year from an estimated 4.5 percent this year, targets which could be difficult to meet with growth limp and without spending cuts.

At 56 percent of GDP, France's general government spending is second only to Denmark among the 31 developed countries tracked by the Organization for Economic Cooperation and Development.

"No politician has the courage to announce a real cut in spending," said political analyst Bruno Jeanbart at pollsters Opinionway. "But social spending needs to be reduced, that's France's reality."

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Graphic of polls, click on: r.reuters.com/was36s

Election online: tinyurl.com/7hpt4vy

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Reporting by Leigh Thomas; Editing by Susan Fenton

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