'France to cut taxes on businesses and households'

Paris: France`s government unveiled Friday plans to lower taxes on households and companies, as the ruling Socialists lined up their budget for the 2017 election year.

The gesture to households would "take the form of a reduction in income taxes by 20 percent for the middle class," Finance Minister Michel Sapin told AFP.

Around 5 million households would benefit from the 1-billion-euro ($1.1 billion) reduction in income taxes, worth about 200 euros per family.

Sapin also said that the headline tax rate for small and medium-sized companies would be reduced to 28 percent -- the European average in 2017 and 2018 -- and for all companies from 2020.

That is a drop from the current headline rate of 33 percent, although small companies benefit from a lower rate on a certain amount of profits.

However Sapin said that despite the tax cuts France would honour its pledge to the EU to reduce its public spending deficit to 2.7 percent of gross domestic product in 2017.

"We`ve made that promise to parliament and EU authorities and we`re going to keep it," said Sapin.

The announced cuts to income tax, coming just over seven months from the presidential election, would take the total reduction since 2014 to six billion euros.

Polls show that President Francois Hollande, who has not announced his intentions regarding a run for a second term in office, and other prominent Socialists would face an uphill battle to make it to a runoff vote.

Criticised for sharp tax hikes at the start of his five-year term, Hollande has since turned towards a gradual reduction in tax rates, although the French economy has posted only modest growth and unemployment remains near record highs.

Sapin also announced a change allowing all retirees to deduct expenses for at-home services, a change which should benefit 1.3 million households at a cost of a billion euros.

In addition, Sapin announced an increase in the tax credit for companies with low-wage employees, which he said would put an extra 3.3 billion euros in their accounts.