Government ministers were spinning the planned tax increase which would come on top of a rise in lower value-added tax rates this week as a "social VAT" increase that would enable companies to cut their social welfare contributions, hoping it will go down well with French voters. "We are going to do a social VAT increase and we are going to do it before the election," budget minister and government spokeswoman Valerie Pecresse said on France Info radio on Tuesday. She did not say how much VAT would go up. The current standard rate of VAT is 19.6 percent. President Sarkozy, who is trailing in opinion polls ahead of the election and is under fire from political rivals for failing to halt a rise in unemployment and debt, flagged the move in a New Year's Eve address, saying the cost of France's generous social welfare system could no longer be borne mainly by labour costs. By raising VAT, imports could contribute more to the cost of welfare, he said. The move sets the stage for a clash with the left-wing opposition. Francois Hollande, the Socialist Party's presidential candidate who is ahead in the polls, warned that raising VAT would further undermine household purchasing power and therefore could hardly be cast as a social-friendly policy. "There's a bit of an oxymoron here, a contradiction in terms. An increase in VAT cannot be a pro-social measure," said Pierre Moscovici, Hollande's campaign director, on Europe 1 radio. "We won't do it." Household spending is typically a major engine of French economic growth and another increase in VAT could deprive the euro zone's second-biggest economy of momentum when it is already teetering on the brink of recession. On Jan. 1 France raised VAT rates for a range of essential products and labour-intensive services, to 7 percent from 5.5 percent as part of an austerity drive launched in November. VAT, which under European Union rules can vary in its standard rate between 15 and 25 percent, is already by far the biggest source of revenue for the French state. With the trade deficit expected to have hit a record in 2011 and the manufacturing sector haemorrhaging jobs, France's decline as a major economy is becoming a key theme in the election, in which Sarkozy is expected to seek a second term. With ratings agencies poised to strip France of its prized AAA credit rating, Sarkozy has switched his election strategy on the economy from trying to convince voters only he can save them from a debt crisis to restoring France's international competitiveness. By casting the VAT increase as a way of making imports help foot the bill of France's welfare system, the government is capitalising on a widely held perception that low-cost products from countries with loose labour and environment laws are stealing market share from French manufacturers while escaping the high-cost of welfare contributions that French companies must bear. "I prefer by far that imports which have for a long time penalised the cost of financing social protection, start financing social protection," Labour Minister Xavier Bertand said on France 2 television.