France on Thursday became the first European country to admit it was looking at adopting Germany’s controversial policy of shifting the heavy tax burden on labour to consumption.
Thierry Breton, French finance minister, said on Thursday that France had to be “very attentive to what is happening in Germany”. The introduction by Berlin this month of a three-point rise in value added tax to 19 per cent, which will be used to cut social charges to businesses and workers, drew much criticism when it was first mooted but, so far, it appears to have had little impact on Germany’s improving economy.
Mr Breton said he would consider in the coming weeks whether this approach could be adapted for France, where labour charges weigh heavily on companies and employees.
One of his close advisers told the Financial Times that it was clear France could not simply copy the initiative, and the forthcoming presidential election meant nothing could be implemented by this government.
French VAT is already at 19.6 per cent, and Germany had implemented some significant structural reforms that remained elusive in France. However the ministry was examining whether some of the tax burden on labour could be transferred, for example through environmental charges, he said.
France’s expression of interest in Berlin’s VAT experiment could be the first of many, according to economists.
“You can see that possibly even Britain is going that way with the debate on the environmental tax,” said Holger Schmieding, senior economist with Bank of America. However he warned that this was no panacea, especially for countries such as France where structural reforms were sorely needed.
Meanwhile, Mr Breton also said France could well beat its own targets for budget deficit and debt reduction this year, due to a €10bn ($13bn, £6.6bn) tax surplus and strong economic performance.