Sarkozy budget freezesstate spending

22nd September 2004, Comments 0 comments

PARIS, Sept 22 (AFP) - In his first and only budget as France's finance minister, Nicolas Sarkozy on Wednesday promised that economic growth and a freeze on spending will bring France back within the EU's deficit limits in 2005 for the first time in four years.

PARIS, Sept 22 (AFP) - In his first and only budget as France's finance minister, Nicolas Sarkozy on Wednesday promised that economic growth and a freeze on spending will bring France back within the EU's deficit limits in 2005 for the first time in four years.  

Predicting a growth rate of 2.5 percent for next year and keeping public expenditure at 2004 levels with a small margin for inflation, his budget provides for a deficit of just under EUR 45 billion (USD 55 billion), or 2.9 percent of gross domestic product (GDP).  

The figures would allow France to fulfil the pledge made by President Jacques Chirac to re-submit to the three percent rule laid out in the EU's Stability and Growth Pact that underpins the euro. The last time France was in conformity was in 2001.  

The deficit for 2004 was EUR 55 billion, or 3.6 percent of GDP.  

Sarkozy, 49, took over at finance in March but is expected to step down from the cabinet later this year to become head of the ruling Union for a Popular Movement (UMP) party - a move widely seen as an opening gambit in a campaign for the French presidency in 2007.  

Presentation of the 2005 budget marks the centre-piece of his brief tenancy, and Sarkozy is banking on strong public approval so that he can leave the government on a high note.  

The 2.5-percent growth estimate -- the same as for 2004 -- has been questioned by some economists as overly optimistic, but the finance ministry said an improved international environment and economic policies targeted on consumption made the rate attainable.  

"After two difficult years, the French economy returned to strong growth in the first half of 2004, reaping the beneficial effects of a firm policy of supporting buying-power and consumption .... Pursuing this policy should allow us to sustain the same positive rhythm in 2005," the preamble to the budget read.  

Restricted by tight financial arithmetic, Sarkozy did not offer a new cut in income tax -- despite campaign promises by Chirac to reduce it by a third by 2007 -- and focused on technical adjustments to personal allowances to boost consumption and job creation.  

Critics said that -- after taking account of increased social security charges -- the burden on the average earner would actually increase in 2005, but speaking after presenting the budget to the cabinet, Sarkozy issued a strong rebuttal.  

"This budget does not contain tax rises," he said.  

Among the provisions are a four-percent increase in the "employment grant" given to people on low incomes, a tax credit for first time home-buyers to replace an existing zero-interest loan scheme; and a reform of the television license fee.  

In addition two measures are included which have been criticised by the left as unfairly favouring the affluent: a reform of inheritance rules to double the amount that can be gifted to a child tax-free, and an increase of 50 percent in the tax relief that can be claimed for employing domestic help.  

Companies will see a small decrease in corporate tax, there will be incentives to invest savings in small-scale businesses and a special fund created to combat "relocation" -- the export of jobs to cheaper countries abroad.  

On the expenditure side, the budget foresees a fall of about 10,000 in the number of public sector workers -- far fewer than liberal economists have demanded. Defence, foreign affairs, education and research all see increases in their allocation, while agriculture, environment and sport face cuts.  

Alerted by widespread leaks to the content of the budget, the opposition Socialists accused Sarkozy of giving way to liberal, pro-market pressures and contriving to leave the government with a gift to his centre-right electorate.  

"This budget is idiotically, grotesquely right-wing. It offers help only to the well-off," said Eric Besson, the Socialists' economic spokesman. "Let's end this myth of Sarkozy being the friend of Mr Average. He is the friend of Mr Money."

© AFP

Subject: French News

0 Comments To This Article