August 23, 2013 / 1:22 PM / 6 years ago

France's proposal for new green levy meets tax resistance

* New levy comes after Sarkozy’s carbon tax was blocked by court

* Sources say levy could replace existing energy taxes

* Already high tax burden makes proposal politically sensitive

By Michel Rose

PARIS, Aug 23 (Reuters) - The French government rushed to assure tax-weary companies and consumers on Friday that a new form of green levy meant to encourage industries and households to cut energy consumption would not amount to new tax increases.

Energy Minister Philippe Martin said late on Thursday the government was creating an “energy-climate contribution”, some four years after ex-president Nicolas Sarkozy’s first attempt at a carbon tax was blocked by a court.

He did not give any details about what form it would take, but government sources said earlier this month that a new levy was likely to partly replace existing taxes and should have little to no impact on consumers in its first year in 2014.

However, 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.

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.

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.

The head of the Medef employers’ union Pierre Gattaz told France Info radio that tax levels were becoming “dramatically high” and even some in the ruling Socialist Party expressed concern.

Finance Minister Pierre Moscovici and Foreign Minister Laurent Fabius both said this week they sympathized with what French media has dubbed “le ras-le-bol fiscal” - a public mood of being fed-up with taxes.

“Let’s be clear about this, this is not a new tax, it’s just a greening of existing taxes on energy,” government spokeswoman Najat Vallaud-Belkacem told Europe 1 radio, adding that the levy would be introduced in the 2014 budget bill in September.

Hollande, whose approval ratings are in the doldrums, is squeezed between not wanting to dampen household spending and trying to reassure his Greens party allies of his environmental credentials. Relations have been strained since he sacked his environment minister earlier this year.

Cecile Duflot, housing minister and a high-profile Green member of government, said she wanted to encourage consumers to insulate their homes and choose alternative ways of heating, which could translate into lower energy bills.

Government sources said this month that a tax linked to carbon prices could replace part of the existing TICPE tax levied on petrol, diesel, coal and gas consumption, as proposed in a report by French economist Christian de Perthuis.

The Greens want receipts from such a new tax to be redistributed to households via energy vouchers that could be used to pay for home insulation, for instance.

Sarkozy’s attempt at a carbon tax, blocked by the constitutional court in 2009 on purely technical grounds, would have set a levy of 17 euros per metric ton of carbon dioxide emissions, which would have increased over time. It would have translated into a rise in the price of fuel for cars, domestic heating and factories.

An energy ministry spokeswoman said the details of the new tax still had to be approved by the government. (Additional reporting by Natalie Huet, Ingrid Melander and Marine Pennetier; Editing by Catherine Bremer and Susan Fenton)

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