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Britons face Nicolas Sarkozy tax rise to fund French welfare plan

Financial newsPresident Sarkozy will face accusations that he is turning his fiscal policy on its head today when he announces an increase in tax on investment revenue to finance a back-to-work programme.

The 1 per cent rise on share, property rental and other investment income is designed to help to pay for the French President's promise to end the so-called welfare trap, in which it can be unprofitable for jobless people to return to employment.

The tax will be wide-ranging and could affect thousands of Britons who let their properties in France in the holiday season. Critics argue that the move signals the death of Mr Sarkozy's tax-cutting crusade as he struggles to implement Blairite electoral pledges while trying to limit the €50 billion French budget deficit.

The tax increase, which officials hope will generate about €1.5 billion a year, will bring the total tax rate on investment revenue to 30 per cent. Opponents say that it flies in the face of Mr Sarkozy's attempts to encourage wealth creation and to tempt back French tax exiles from Britain, Switzerland, Belgium and elsewhere.

Dominique Paille, spokesman for Mr Sarkozy's Union for a Popular Movement, said, that the new benefit "is a good means for those in difficulty and in a precarious situation to find stable and lasting work again and, therefore, it deserves solidarity from everyone".

The Revenue de Solidarite Active is designed to ensure that the income of welfare claimants rises when they find employment. At present some people are better off on benefits than in a low-paid job - a disincentive to get off the dole, many economists say.

Under the new scheme, claimants will be able to keep benefits equivalent to 60 per cent of their salary after they start work. An average couple on low wages with one child would be €224 a month better off.

Mr Sarkozy's scheme is likely to apply to up to four million people and cost about ˆ8.5 billion a year. The Government will find €7 billion a year by abolishing some existing benefits. The French economy contracted by 0.3 per cent in the second quarter and jobless levels are expected to rise from 1.9 million over the next 12 months.

Source: TimesOnLine
Date: 30.08.2008 [187]
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