Ireland has the lowest tax burden in the bloc, with a ratio of 23 percent, according to Eurostat. The EU average was 40.3 percent. France has held the top spot since 2015, and its high tax burden has long been a source of resentment among working class voters. A citizen-led rebellion dubbed the “yellow vests” erupted last November in anger at planned fuel tax hikes and high living costs. The movement rapidly morphed into a broader backlash against President Emmanuel Macron’s government, seen as elitist and out of touch with ordinary citizens.
The weekly protests boiled over into some of the worst street violence in decades, derailing the government’s reform plans and seriously undermining Mr Macron’s authority.
The crisis forced the 41-year-old centrist to refocus on cutting taxes for lower-income households after he eased the tax burden on businesses in his first two years in office.
The Macron government gave a first injection of emergency tax relief earlier this year to poor workers and households worth €10million (£8.6million) and followed up with a promise to offer new tax cuts in its 2020 budget in an effort to quell any future unrest.
The budget will contain more than €10billion of new tax cuts, benefiting households in particular, Prime Minister Edouard Philippe said last month.
Budget Minister Gérald Darmanin said: “This is an unprecedented tax cut. It’s a fact that tax cuts have been stepped up in response to the yellow vests.”
The 2020 package is made up primarily of €5billion (£4.3million) in income tax cuts that Mr Macron already flagged in April.
The rest will consist in a further cut in taxes people pay on their primary residence – worth €3.7billio (£3.2billion) – and the extension of a tax exemption on overtime pay, according to Mr Darmanin.
The government intends to eliminate some tax breaks, loopholes and exemptions to help pay for the broader cuts. It is also counting on extra revenues from a tax collection reform which is expected to yield around €2billion (£1.7billion).
However, Paris was warned by the European Commission last week that its draft budget might be in breach of the bloc’s fiscal rules, namely on public debts.
France expects no structural improvement next year, contrary to EU requests for an improvement worth 0.6 percent of GDP.
Finance Minister Bruno Le Maire explained that he had made a “political choice” to cut taxes in a bid to address the social crisis triggered by the yellow vests as well as the slowdown of the global economy.
Before the yellow vest revolt forced him to put the brakes on his reform plans, Mr Macron had intended to cut France’s considerable public spending – the highest among rich countries.