With a presidential election due next year, the French government have raided the larder to announce some income tax reductions for 2017.

Income Tax

The main announcement is a reduction of 20% in income tax to benefit around 5 million households who will secure an average saving in their tax bill of €200.

The reduction will arise in 2017, against 2016 income.

The government states that a couple without children with net monthly income of €3,400 will receive an annual reduction of income tax of €465 in 2017, to give tax payable of €1,859.

Those on a higher income but with children would also benefit.

Thus, a couple with on child earning €3,770 net per month would gain €423, to pay €1,691; those with two children on €4,100 would gain €360, to pay €1,439; a couple with three children earning €4,780 a month would gain €249, to pay €998.

A single person with a net income of €1,700 per month would gain €191 to pay €765, whilst with one child and an income of €2,400 the reduction would be €87, to pay €346.

This is the third successive year in which there has been a reduction in income tax, although it has been taken different forms on each occasion, in the past to the benefit of those with modest incomes.

As a result, less than 50% of households in France pay any income tax at all, and income tax now contributes less than 20% of government revenues, against around 51% received from VAT.

Not surprisingly, therefore, the announcement was greeted with a great deal cynicism by commentators, with one of the most critical, Henri Sterdyniak, an advisor to the OECD, calling the reduction 'demagogic', with the reduction making very little difference to economic performance, and concentrated on wealthier households.

The European Commission also warned that, having already twice been given a reprieve to get down the level of government debt below 3% of GDP, no further delay would be granted.

Domestic Services

In addition to the main reduction in income tax, the government have also announced more generous tax relief for domestic services in the home (services à la personne).

These activities include cleaning, gardening, child care, IT assistance, shopping etc, with tax relief available not just to the elderly and infirm, but able-bodied households.

At the present time the tax relief takes two different forms, depending on the type of household:

• For those who are salaried or in business, a tax credit is granted.
  
• For those who are retired, it takes the form of a tax reduction.

The difference is not insignificant, for in the first case the tax credit is granted irrespective of the level of tax payable; in the former case it only arises if income tax is actually paid.

Elderly and infirm persons who might not actually pay any income tax could not therefore derive any benefit from the relief.

From 2017 this will all change, so that the assistance takes the form of a tax credit for everyone.

The level of relief will remain the same. This is set at 50% of expenditure up to €12,000, which can be up to €20,000 in particular cases.

Some activities are, however, capped at a maximum level of expenditure, notably building maintenance, which has a €500 limit.

There are also certain formalities that apply, either using a salaried person or an accredited organisation.