Income tax and social security contributions are to be reduced this year for millions of households and businesses.

The proposals form part of a concerted attempt by the government to respond to the tax overdose on households in recent years, and to reduce the burden of social security contributions on businesses.

They are contained in the projet de loi de finances rectificative pour 2014, currently nearing completion of its parliamentary process.

The plan has not met with universal approval, with some critics arguing it is no more than a reckless attempt to revive the flagging fortunes of President Hollande, who, on the basis of recent opinion polls, has become the most unpopular President in French history.

In the face of a huge public deficit and strictures from the European Commission that the government needs to 'do better' to reduce the debt, it is certainly an interesting juggling act.

The government states that the reductions will in large measure be funded from measures introduced to combat tax evasion, but as the French national auditors, the Cour des Comptes, recently reported, the French public accounts remain in a very parlous state.

A summary of the main proposals is given below.

Income Tax

The draft bill proposes a reduction in the level of income tax for the 2014, for income earned in 2013.

Accordingly, the beneficiairies of this measure will see a reduction in their tax bill when the income tax notices drop through the door in the autumn.

The amount of the reduction in tax will be up to €350 for single persons, widows and divorcees, and €700 for couples.

Those who will benefit are those with a taxable income (revenu fiscal de reference) in 2014, for income earned in 2013:

• Single persons, widows and divorcees less than €14,145.
  
• Couples who are taxed on a shared basis no greater than €28,290.

These limits are increased by €3,526 for each child or other dependant in the household.

The amount of the reduction will be on a sliding scale for those whose income is greater than €13,795 (singles) or €27,590 (couples).

According to the government, these proposals mean that a retired couple with a monthly joint net income of €2,400, who would previously have paid €1,064 in income tax, will now pay €354.

A couple with two children on a joint taxable income of €3,081 will see their income tax bill fall from €849 to €149.

The government claims that around 3.7 million households will benefit from this measure, including 1.9 million who will no longer be liable for income tax.

It is likely that a large number of these households do not currently pay any income tax, or at least pay very little, but with the toughening of tax rules over the past few years, the risk existed that many would become liable, or see their current tax bill increase.

Although the reduction is stated to be 'exceptionnelle' the government are proposing that it will be a permanent reduction applicable in subsequent years. However, this will require legislative action in each year.

Social Security Contributions

A number of measures seek to reduce the level of social security contributions for employees, employers and small business owners.

Perhaps of greatest interest to readers of this Newsletter is the planned reduction in social security contributions to travailleurs indépendants.

Here, the government is proposing that from 2015 there will be a reduction in the level of the cotisations familiales for those whose net business income is less than €53,000 per annum.

This measure will apply equally to auto-entrepreneurs, who do not pay specific social security contributions, but a single percentage contribution. The mechanics of this reduction have yet to be published.

Under these changes a commerçant with an annual net income of €39,000 who would be liable in 2014 for €18,917 in social security contributions in 2014, with see their contributions reduced in 2015 by €1,209, a reduction of 6%.

Similarly, an artisan with a net business income of €15,000, liable in 2014 for social security contributions amounting to €7,410, will see their bill fall to €6,890 in 2015, a reduction of 7%.

In addition to these measures for small businesses, the government is proposing to abolish employer social security contributions for employees earning no more than the minimum wage, equivalent to €17,344 per year for a full time employee, a measure that will apply from 1st January 2015.

The level of employer contributions will also reduce on a progressive basis up to €26,606 per annum.

Employees earning up to around €22,000 per annum will also benefit from a reduction in their social security contributions.

From 2017 the level of company tax - l'impôt sur les sociétés - is also to be reduced on a progressive basis to 28% up to 2020, a measure that is arguably far more speculative.