French lawmakers abolish tax breaks, boost taxes on rich

French lawmakers Thursday backed a series of measures abolishing tax breaks and taxing the wealthy as the new Socialist government pursued efforts to kickstart the economy with a tax-and-spend programme. The measures were part of the first budget bill presented by President Francois Hollande's government since he unseated right-wing Nicolas Sarkozy in May with pledges to focus on growth instead of austerity. The lower house National Assembly approved the first measure in the early hours of Thursday, ending a Sarkozy policy dubbed the "work more, earn more" rule of exempting overtime hours from payroll charges and income tax. Lawmakers later voted to back an emergency rise in the ISF wealth tax applying to taxpayers with a net worth of more than 1.3 million euros ($1.6 million) and which is expected to bring in an extra 2.3 billion euros in revenues this year. They also approved a tightening of the inheritance tax to reduce the exemption ceiling from 159,000 euros per child to 100,000 euros, the creation of a three percent surtax on cash dividends and the doubling of a tax rate on financial transactions to 0.2 percent. With a strong majority in the lower house, the Socialists and their parliamentary allies were able to easily push through the measures despite some fierce opposition from right-wing and centrist deputies. The policies are part of a revised 2012 budget up for approval. More measures are expected to be voted in later, including a 30 percent decrease in salaries for the president and ministers. Lawmakers on Tuesday had already voted to scrap a planned increase in the value-added tax pushed through by Sarkozy to compensate for a reduction in payroll charges aimed at boosting competitiveness. More fiscal steps promised by Hollande, including a 75 percent tax rate on annual incomes in excess of a million euros, are expected to be introduced next year. During the debates Budget Minister Jerome Cahuzac defended the measures as "a tough effort asked of those who can" afford it. The right accused the Socialists of "lying" during the campaign and of hitting the middle-class with unexpected tax hikes. "The rich will pay a little bit more but those who will make the biggest efforts will be the small and medium" income taxpayers, former labour minister Xavier Bertrand told France Inter radio. The French cabinet earlier this month approved the revised 2012 budget, which includes 7.2 billion euros in tax rises and 1.5 billion euros in spending cuts this year. Tax increases are expected to raise another 6.1 billion euros next year. France has made commitments to the European Union to reduce its budget deficit from 5.2 percent of GDP last year to 4.5 percent this year, aiming to get down to the EU limit of three percent in 2013 and to balance the budget in 2017. The government is hoping that investment in infrastructure and job creation will reboot France's stagnant economy, which is expected to have suffered a slight contraction in the second quarter.