France said Thursday it would temporarily raise taxes on the profits of big companies in order to meet its deficit target after being hit with a hefty bill for an unlawful levy on dividends. President Emmanuel Macron's centrist government has pledged to bring the deficit within the EU limit of 3.0 percent of GDP for the first time in a decade this year.
That goal, however, appeared to be in jeopardy after the state was ordered to pay back 10 billion euros ($11.6 billion) in taxes on dividend payments imposed by Macron's Socialist predecessor Francois Hollande. Ruling that the tax was unfair, the French Constitutional Council ordered last month that companies be reimbursed, creating a massive hole in Macron's first budget.
The new cost represents two-thirds of the 15 billion euros the government said it would find in new savings next year, and far exceeds the seven billion it has promised in tax cuts. The government announced a workaround on Thursday, when spokesman Christophe Castaner said the shortfall would be made up through a one-off increase in taxes on the profits of France's 320 biggest companies.
From 33.3 percent currently, the corporate tax rate will rise to 38.3 percent for companies with turnover in excess of 1 billion euros in 2017 and to 43.3 percent for those with revenues in excess of 3.0 billion euros, he announced. The move is expected to add 5.0 billion euros to state coffers, which, when coupled with additional spending cuts, will allow France to maintain its goal of a 2.9 percent deficit, the government said. Castaner said the tax hike, which will be included in a revised budget, will "share the effort (of repaying the dividends tax) 50-50 between the state and companies." The announcement came as a group of companies in western France unveiled plans to sue the state over the dividends tax.
Macron had been accused of being soft on the rich and big business in the first version of his budget. The left-wing opposition labelled him the "president of the rich" for slashing a wealth tax while at the same time trimming housing benefits for students. Macron argues that cutting taxes on capital is necessary to spur investment and job creation.
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