France budget to attack soaring deficit

29th September 2010, Comments 0 comments

President Nicolas Sarkozy's government sets out its stall for next year on Wednesday, attacking France's soaring deficit with a budget that closes tax loopholes and imposes unprecedented spending cuts.

The cuts are aimed at reassuring bond markets and France's European partners against a background of historic and growing deficits, in particular after the social security budget was revealed on Tuesday.

Next year interest payments on France's debt are expected, for the first time, become the largest slice of state spending, ahead even of the education budget, although still behind the separate social security budget.

Many of the planned measures that government hopes to control public spending have already been revealed and France is braced for deep cuts and rising public anger as the austerity package begins to hit home.

Public deficit -- the total gap between revenue and expenditure in the state budget, local government and social security -- will hit a record 7.8 percent of Gross Domestic Product this year, far above Europe's three percent target.

The huge public deficits built up by European states in the wake of the global slowdown have weakened the eurozone single currency bloc and worried bond markets, threatening the continent's still shaky recovery.

Paris has promised fellow EU members that the deficit will be reduced to six percent next year and dragged back to the three percent limit by 2013.

Such a dramatic crackdown has never been achieved in modern French history and, if the massive strikes and street protests that greeted Sarkozy's pension reforms plan are a guide, it will face stiff opposition.

Ministers have said that the budget will be seven billion euros smaller than this year's.

"All the decisions have been made," said Finance Minister Christine Lagarde, who will unveil her plans to the cabinet before they go to parliament for approval amid outcry from the Socialist opposition.

Socialist leader Martine Aubry said the budget was "a real austerity plan" that will affect "mainly the middle class and not those who really have money."

She told Canal+ television that while the budget should reduce deficit and stimulate growth, it will in fact raise taxes "and reduce spending that was necessary for maintaining growth."

Former Socialist presidential candidate Segolene Royal said that the budget was "unfair, insufficient and bad for the environment," criticising what she said would be "the highest tax hike since 1995 except for the very rich."

She told France 2 television that "public debt has doubled in five years... the government is today borrowing a billion euros a day and the government is going to get back only 10 billion" by closing tax loopholes in the budget.

State spending aside from that used to prop up the pension fund and service government debt will be frozen at current levels, as will transfers to local and regional governments.

Ministry operating budgets will be cut by five percent and the state payroll reduced by only replacing one retiring government employee in two.

Government hopes to increase its revenues by 10 billion euros in 2011 by cracking down on special salary schemes and tax loopholes.

This amounts to de facto tax increases on certain previously favoured categories of worker and on some insurance and property investments as well as on domestic Internet, television and telephone connections.

© 2010 AFP

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