France targets deficit cut with tax-hiking budget

Written by Reuters | Paris | Updated: Sep 29 2012, 08:39am hrs
President Francois Hollande's Socialist government unveiled sharp tax hikes on business and the rich on Friday in a 2013 budget aimed at showing France has the fiscal rigour to remain at the core of the euro zone.

The package will recoup 30 billion euros for the public purse with a goal of narrowing the deficit to 3% percent of national output next year from 4.5% this year France's toughest single belt-tightening in 30 years.

But with record unemployment and a barrage of data pointing to economic stagnation, there are fears the deficit target will slip as France falls short of the modest 0.8% economic growth rate on which it is banking for next year.

The budget will also disappoint pro-reform lobbyists by merely freezing France's high public spending rather than daring to attack ministerial budgets as Spain did this week in a bid to avoid the conditions of an international bailout.

"This is a fighting budget to get the country back on the rails," PM Jean-Marc Ayrault said, adding that the 0.8% growth target was "realistic and ambitious".

With public debt at a post-war record of 91% of the economy, the budget is vital to France's credibility not only among euro zone partners but also in markets which for now are allowing it to borrow at record-low yields under 2%.

The government said the budget was the first in a series of steps to bring its deficit down to 0.3% of GDP by 2017 missing an earlier target of a zero deficit by then. Of the total 30 billion euros of savings, around 20 billion will come from tax hikes on households and companies, with tax hikes already approved this year to contribute some 4 billion euros to revenues in 2013. The freeze on spending will contribute around 10 billion euros.