"According to our calculations there is a €1 billion shortfall on value-added taxes and a €4 billion shortfall on corporate taxes, which are particularly sensitive to the economic cycle", French budget minister Bernard Cazeneuve said on BFM Television.
He added that income tax revenue also fell €500 million short of estimates, but as income tax revenues are based on 2012 incomes, he said his ministry was not yet sure what was behind this shortfall.
Cazeneuve also said the French treasury was continuing its fight against tax evasion and is aiming to recuperate €2 billion worth of revenues from tax fraud in 2014, half from individuals and half from companies.
The gloomy economic news comes just days after the bitter blow that France’s economy had contracted in the third quarter as investment dropped. The €2 trillion economy shrank 0.1 per cent in the quarter, slowing sharply from growth of 0.5 per cent in the previous three months, the INSEE statistics agency said last week.
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In an interview with FAZ, Christian Noyer, Head of the Bank of France, urged "more flexibility", advising President Hollande to lower national debt by cutting government spending rather than imposing higher taxes. The French, he said, were ready for this, "if a strategy was presented with clarity. They need to feel that the efforts are distributed evenly and would improve the bureaucratic structures long term."
"The French should also be told that their social model, which is very impotant to them, can only be sustained if some cuts are made", he stated further. "Of course this is never easy. Lobby groups fight against it, but this is not a French phenomenon. The so-called peripheral countries of the euro area have made substantial efforts in the past two years which are now bearing fruit. Furthermore, spending cuts have a smaller impact on growth in the medium than tax increases", he said.
As an ECB Executive Board Member, Noyer considers a revival of the French economy essential for the interests of the entire euro area. And for the euro area, he hopes that the upcoming ECB review of banks' balance sheets will make an important contribution to the recovery of the banking sector. He wasn't afraid of "zombie banks" who only existed because of cheap central bank money, he said. "Those estimates are greatly exaggerated. They come from observers or institutions outside the eurozone which will undoubtedly have ulterior motives."
The WSJ (subscription) reports that Prime Minister Jean-Marc Ayrault has made a new pledge to transform France's tax system, acknowledging broad public discontent following a series of policy U-turns. "France's taxation system has become too complex, almost illegible, and French people too often misunderstand its logic or think what they pay is unfair", Mr Ayrault said in an interview published in the business daily Les Echos. "I think the time has come for a transparent overhaul of our tax system."
Mr Ayrault told the newspaper he aims to overhaul the tax code in the 2015 budget and will soon begin meeting trade unions and business representatives to seek their input. He later also announced his plans in parliament. He has invited lawmakers from the right-wing opposition to contribute to the debate on transforming the tax system. He limited the scope of any overhaul, saying it wouldn't affect the overall level of taxation.
To bring down the deficit, the government will continue to focus on limiting spending, building on the €15 billion ($20 billion) of measures that were included in the 2014 budget. "It will be necessary to continue at least at the same rhythm in 2015, 2016 and 2017", Mr Ayrault said.
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