French accounting questioned as deficit drops

24th January 2006, Comments 0 comments

PARIS, Jan 24, 2006 (AFP) - The French 2005 central government budget deficit for 2005 will be EUR 43.5 billion, a reduction of more than EUR 3 billion from the forecast figure, the budget minister said Tuesday.

PARIS, Jan 24, 2006 (AFP) - The French 2005 central government budget deficit for 2005 will be EUR 43.5 billion, a reduction of more than EUR 3 billion from the forecast figure, the budget minister said Tuesday.

The improvement should help France meet its overall public deficit promises to the European Union.

"Concerning the central government budget, we have a better result than we had forecast at the start because we had forecast a deficit of EUR 46.8 billion and it will be EUR 43.5 billion," Budget Minister Jean-François Copé told French radio.

French Finance Minister Thierry Breton had said Monday that France was on track to meet its EU-imposed target of a public deficit of three percent of gross domestic product in 2005.

The European Commission, which is responsible for policing fiscal policy in the 25-nation bloc, had forecast that France would report a deficit of 3.2 percent.

The EU's Maastricht criteria for the general public deficit, which are the basis of the three-percent spending limit, take into account the surplus or deficit in the central government's budget, in the social security budget and in local authority budgets.

The EU rules require that member states keep their overall public deficits below a ceiling of three percent of GDP.

France breached this for three years running prior to 2005. In 2004, the French public deficit was 3.7 percent.

Nonetheless Breton faced questions Monday about the accounting methods used to calculate the shortfall.

Before a meeting with European Monetary Affairs Commissioner Joaquin Almunia in Brussels on Monday, Breton stressed that France was on track to meet its target of a public deficit of three percent of gross domestic product in 2005.

"I am going to tell Almunia that this undertaking will be respected," Breton said, underlining that reining in France's public debt was "an absolute priority" for his centre-right government.

Breton also said that a public deficit of 2.9 percent in 2006 was a "realistic" objective for 2006.

But French newspapers Les Echos and Le Figaro had reported on Monday that the government had used a new method to calculate corporate taxes for large companies at the end of 2005.

This new method, the papers said, had obliged companies with a turnover of more than one billion euros to pay their taxes earlier and had helped reduce the deficit by about EUR 2.3 billion.

Without the additional revenue, the public deficit would have measured EUR 46.8 billion, figures published by the papers showed.

After meeting Almunia, Breton insisted under questioning that the new method for calculating corporate taxes was "not an accounting thing".

Officials from the office of Copé had earlier called the figures in the newspapers "imprecise and inexact".

Some analysts were unconvinced and Breton himself said that it was too early to say whether France would escape a disciplinary procedure from the European Commission for having an "excessive deficit".

It remains to be seen what the commission will make of the French accounting method, but a source at the European Commission told AFP that the EU executive took a dim view of "creative accounting" by member states to artificially reduce their public deficits.

An economist at investment bank UBS, Stéphane Deo, commented: "The good news: French deficit below three percent ... the bad news: this is thanks to corporate tax."

Copyright AFP

Subject: French news

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