Sales tax plan to finance health care roils French campaign

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PARIS, June 14 (AFP): A plan to switch the financing of French health care from payroll charges to higher sales taxes to help companies withstand competition has enlivened the final round of legislative elections.
In calling for debate on the measure, right-wing Prime Minister Francois Fillon sparked an outcry from the left, with the Socialist Party accusing him of aiming to finance tax breaks for the rich with money from ordinary workers.
Socialist deputy Dominique Strauss-Khan claimed the measure would cause "turmoil in the daily life and wallets of many French citizens" and challenged Fillon to a debate on the issue.
On Tuesday, Fillon asked two members of his cabinet, Economy Minister Jean-Louis Borloo and Secretary of State for Prospects and Evaluation Eric Besson, to assess the chances of applying what is known here as a "social" sales tax.
The controversy in France is likely to be followed with interest by countries throughout Europe facing deep problems in financing welfare, regardless of their tax structure.
Germany has begun using an increase in sales tax as part of its solution.
In France, aggregate taxes and social charges account for 44.4 per cent of gross domestic product, a figure considered high by international standards.
The "social" budgets, managed separately, total about 295 billion euros (392 billion dollars) this year, and exceed even the total central government budget of 268.0 billion euros.
Various social charges that fall mainly on employers but also on employees to finance health care and other benefits almost double the cost of employing workers compared with net take-home pay.
Not all of these charges relate to the financing of health care. But the overall social charges weighing on business are now widely recognised to be a seriously handicap for French firms.
In particular they are considered a major factor behind what has been termed "delocalisation," the shifting of production from France to low-cost countries, a particularly hot issue.
Under the sales tax proposal, companies would be relieved of some health-care charges to boost employment. The burden would be switched to households via an increased value-added sales tax on consumption.
The issue erupted in the run-up to Sunday's second round of legislative elections following the mid-May presidential victory of conservative President Nicolas Sarkozy.
Senators Jean Arthuis and Philippe Marini maintain that raising the sales tax by one point from its current level of 19.6 per cent would earn seven billion euros a year for the government.
But economist Marc Touati has argued that such a tax move would have a lopsided impact on the population, "since it is paid in the same manner by all consumers, regardless of their salaries."
He said: "Pensioners and the unemployed, who by definition would not be affected by lower social charges on businesses, would be at a heavy disadvantage."
Opposition political figures have also denounced the scheme.
"Families are going to pay for the breaks accorded the bosses," the French Communist Party charged, in a reference to tax cuts announced by the new government to encourage work and stimulate the economy.
Centrist Francois Bayrou of the newly formed Democratic Movement party said: "All French people, especially the poor, will see their burdens increase and living standards decline."
Labour Minister Xavier Bertrand charged that opponants were "trying to frighten" the electorate.
Fillon has insisted his government does not intend to "increase the tax burden" but acknowledged that while "this idea is fair, it is all the same not a simple idea."