Villepin's to-do list for a better France

1st September 2005, Comments 0 comments

PARIS, Sept 1 (AFP) - French Prime Minister Dominique de Villepin announced a series of economic measures on taxation, energy and housing Thursday aimed at securing what he called "a durable increase in French purchasing power" to stimulate growth.

PARIS, Sept 1 (AFP) - French Prime Minister Dominique de Villepin announced a series of economic measures on taxation, energy and housing Thursday aimed at securing what he called "a durable increase in French purchasing power" to stimulate growth.

At a press conference at his official residence, the prime minister -- a close ally of President Jacques Chirac -- also promised investment to solve the country's housing crisis and to develop alternative energy sources to beat the soaring cost of oil.


The 51-year-old leader, who gave himself 100 days to restore the confidence of the public after taking power at the start of June, claimed initial success for his record so far -- citing a recent fall in the number of job-seekers.

He said he sought "growth that benefited everyone" and "created jobs", adding that as he approached the end of his first 100 days in office efforts to boost employment were bearing fruit.

The French jobless rate in July fell below the symbolic 10 percent level -- to 9.9 percent -- for the first time since October 2003.

Spending cuts and the public deficit

But in an increasingly competitive global environment, it is time for a "second phase" of reforms in order to safeguard the country's cherished "social model", he said.

"Our model of society answers to the deepest expectations of the French. But in a world which is changing fast, in order to stay ahead in the race it is imperative that we modernise it. For that we need an engine, a project," the prime minister said

De Villepin vowed that the government would carry on with public spending cuts in a bid to shrink its public deficit to under three percent of output this year as required by eurozone regulations.

"The state will continue its effort to reduce its current spending in order to meet the three percent public deficit target in 2005," de Villepin told a press conference.

De Villepin said that more than half the credits for government departments and public bodies that are now frozen would be cancelled.

"I am aware that this will mean a considerable effort on the part of the all these departments. But it is a legitimate effort at a time when all French citizens are mobilizing to galvanize growth," said de Villepin.

France as a member of the 12-nation eurozone is bound by the 1997 Stability and Growth Pact to limit its annual public deficit to under three percent of gross domestic product.

The shortfall last year execeeded that limit, coming to 3.6 percent of GDP.

Some analysts have expressed doubt that the government will be able to reduce the deficit to the maximum permitted limit this year because the economy is expected to grow by less than had been forecast and therefore tax revenue is likely to fall short of expectations.


De Villepin also said that an easing of the tax burden on the middle class was a priority but recalled that tax cuts planned for this year would be suspended. "The tax cut will be resumed on income in 2006 as part of a major fiscal reform," de Villepin declared.

Seeking re-election in 2002, President Jacques Chirac promised reductions spread over five years, including 15 billion euros in taxes levied on income.

De Villepin said that reform of a wealth tax was "not a priority". But he noted that he had instructed the finance ministry to conduct a study of any "corrections" that might be needed.

Some voices among supporters of the government have criticised the tax, charging that is has perverse effects, one of these being an expatriation of private wealth.

Villepin countered: "I believe that a tax on wealth is a fair tax. We must make sure that this tax does not lead to inequalities or injustices. If there are corrections to be made, we must study them."

Other changes announced include a simplification in the income tax system from 2007 to reduce the number of bands from seven to four, and to phase out special dispensations for professional categories that have accumulated over decades.

The "priority" was to increase the spending power of the middle classes, who will benefit to the tune of some EUR 3.5 billion, Villepin said.

To encourage a return to work, the prime minister promised to eliminate distortions that make it sometimes advantageous to stay on the dole, and to crack down hard on fraud. "I want it to be more profitable and easier to work rather than to live on benefits," he said.

A bonus given to 8.8 million low-paid workers will be paid monthly rather than yearly as present, and a one-off payment of EUR 1,000 that is given to certain categories of unemployed who find a job will be supplemented by a monthly EUR 150 for the first year.

Subsidies will be paid for houses equipped with solar heating, and there is to be a nationwide campaign to encourage motorists to cut their speeds.

There will be new controls on rent increases as well as a tax credit for parents or grandparents to buy flats for the new generation, he said.

Energy policy

The prime minister also offered help to households and businesses hardest hit by the huge increase in oil prices, and spelled out incentives for energy conservation.

To counter rising energy costs, the prime minister said he wanted to see bio-fuels account for 5.75 percent of the fuel used in France in 2008 rather than 2010, as called for in a European Union directive.

"Reality must be faced: we have entered the post-petrol era," de Villepin said.

In addition, the tax credit on clean-burning vehicles would be increased from EUR 1,525 to EUR 2,000.


In the area of housing, he said, zero-interest loans would accessible to more families, notably for those earning EUR 4,000 to EUR 7,000 (US $6,150-$8,600) a month in urban areas where housing prices are high.

Fifty million euros would be made available to improve safety conditions in temporary housing, a step taken in the wake of two fatal fires last month in run-down Parisian buildings inhabited by African immigrants.

Villepin said the state would release new land for low-rent construction including the Batignolles district of Paris that had been designated for an Olympic village in the city's failed bid to host the 2012 Games.

Land would also be requisitioned to build 5,000 temporary homes between now and the end of the first quarter of 2006.

A CSA poll Thursday showed that 50 percent do not have confidence in Villepin, against 40 percent who do.

The prime minister faces united opposition from the trade union movement for his key measure announced in June to cut unemployment -- a new jobs contract which makes it easier for businesses to hire and fire in the first two years of employment.

From the other direction he has pressure from within the ruling Union for a Popular Movement (UMP) party, whose popular president, Interior Minister Nicolas Sarkozy, openly advocates radical liberalisation to free up the economy.

Copyright AFP

Subject: French news, French economy, economic growth, public deficit, eurozone, de Villepin, unemployment, housing, oil policy,

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