As we have been reporting recently, over the past few months the government has been preparing the budget for next year, with the principal objective of finding around €40 billion in savings.
Yesterday, the Prime Minister, François Bayrou, made a series of announcements concerning the budget, which included a proposal to abolish two public holidays - Easter Monday and 8th May, VE Day.
In addition, he announced that income tax thresholds will not be increased in line with inflation, as is customary, and that they will remain the same as this year.
The 10% tax allowance that is granted on pension income will be abolished, to be replaced by a fixed sum allowance.
"We are going to transform the deduction of 10% of income into a deduction of €2,000 for everyone," announced the Minister of the Economy, Éric Lombard, confirming the announcement of the Prime Minister that, "The benefits for professional expenses are not justified for all households," and that he was determined to track down "useless, inefficient tax loopholes".
The reform thus protects those on the smallest pensions, whose purchasing power will remain unchanged. "We will differentiate between households that need help and must be protected, and those that are above in terms of capacity," said the Prime Minister.
Éric Lombard went further, stating that for "all pensioners who are at the beginning of the tax scale (...), their taxation will decrease. To compensate, the tax on pensioners who earn more than €20,000 per year will be slightly increased."
The cost of the pensions tax allowance, to around 15 million households, is around €5 billion a year. The government has not stated the savings that will be made by abolishing the allowance.
However, in making the announcement, the Prime Minister stated that it was “a moment of truth” for the country.
The opposition parties, who have a majority in parliament, have denounced the proposals, to which the government have responded by opening the door for negotiations on the package.
It is, therefore, by no means certain that the measures will pass in their present form, and the outcome of it all will not be known until the end of the year, or earlier, if the government faces and loses a motion of confidence.
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