France's Sarkozy Announces Tax Hike

By Jamey Keaten

PARIS -- In a big pre-election gamble, President Nicolas Sarkozy pledged Sunday to raise the consumption tax as a way to ease fees paid by employers, hoping to lower high labor costs and keep jobs in France.

Sarkozy went on national TV Sunday to announce his conservative government will increase the value-added tax by 1.6 percentage points, to 21.2%, and raise fees on investment income.

The tax proposal, to be floated next month, comes as France has struggled to rein in a bloated state budget deficit, and boost job creation and economic growth -- three months before its next presidential election.

Polls show the higher tax is unpopular, but Sarkozy -- who has long depicted himself as a man of action -- appears willing to gamble that in the end, the French will support a leader who takes tough choices to jolt France out of its lackluster growth, high joblessness and hefty state debts.

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Sarkozy, who turned 57 Saturday, trails Socialist nominee Francois Hollande in the polls. Sarkozy said he's focusing on his job, and stopped short of announcing his candidacy -- but hinted that the moment was coming.

"I have an appointment with the French people. I won't avoid it, and frankly, it's coming," he said, mentioning he knows the deadline under the law for his candidacy if he intends to run: March 16. Most pundits expect he will.

The new tax revenues would let the state take over payment of some worker benefits now paid for by employers, helping to lower high labor costs for companies and make products made in France more competitive.

"We are lifting (employer) fees on jobs that could be taken out of the country, because we want to keep them in France," Sarkozy said, adding the fee waiver will cost 13 billion euros ($17 billion). "If we want to increase salaries, we have to stop weighing them down by the fees that we load onto the backs of companies -- that make companies flee our country, and penalize jobs."

Leftist critics oppose the increased tax, insisting that lower-income people will bear an unfair share of it.