France to unveil tough budget cuts

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French President Nicolas Sarkozy's government began two-days of budget announcements on Tuesday, including tough spending cuts designed to reassure markets and France's European partners.

The 2011 social security budget was to be unveiled on Tuesday and the state spending budget presented to cabinet on Wednesday, with both coming against a background of historic and growing deficits.

In France, overall welfare budgets are clearly separated and are considerably bigger than the central government budget.

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

Without new cutbacks, the French social security fund's deficit will swell to a record 28.6 billion euros (38 billion dollars) next year, according to official figures leaked ahead of the formal announcement.

France's public deficit -- the total gap between earnings and expenditure in the state budget, local government and social security -- will hit a record 7.8 percent 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 block and worried bond markets, threatening the continent's still shaky recovery.

Paris has promised fellow European Union members that the deficit will be reduced to six percent next year and dragged back to the three percent limit theoretically imposed on eurozone members 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 political opposition.

Ministers have said that the budget going before ministers on Wednesday 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 fellow ministers on Wednesday before they go to parliament for approval.

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.

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

Government hopes to increase its revenues by between 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.

There will also be cuts in social security spending, which is one of the main drivers of the total public deficit, notably through the mechanism of the government's controversial pension reform bill.

"Our plan for next year is to stem the haemorrhage and if possible to get next year's budget smaller," said Budget Minister Francois Baroin.

Under this plan, which is expected to pass parliament next month, France's minimum retirement age will be pushed from 60 to 62 and the number of years needed in paid employment to qualify for a full pension pushed to 41.5.

Unions and the opposition fiercely oppose this, and two one-day national strikes have brought millions of protesters into the streets, but Sarkozy insists it is a necessary first step in taming the deficit.

© 2010 AFP

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