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France expected to raise taxes, make cuts in 2013 budget
09-28-12
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France's Prime Minister Jean-Marc Ayrault said Friday that the government plans to announce a 2013 "combat budget" to tackle debt and bring much-needed growth to the nation.


The full details of the 2013 budget are being presented to France's finance commission, a parliamentary body, by President Francois Hollande's Socialist government.

The budget is expected to include a series of tax increases and spending cuts in order to meet tough debt reduction targets.

It will be a test of confidence for Hollande, elected in May on a pro-growth and anti-austerity platform.

About 30 billion euros ($39 billion) in savings are needed to reach Hollande's ambitious target of lowering the deficit to 3% of gross domestic product by the end of 2013, from a forecast of 4.5% this year.

French ministers met at the Elysee Palace on Friday morning for talks ahead of the budget announcement.

Addressing reporters after the meeting, Ayrault said: "It's a combat budget to fight against a debt that only continues to increase and that rests on the shoulders of French taxpayers and generations to come.

"It's a combat budget for social justice but it's a combat budget for growth, the preparation of the future and it is a courageous and responsible budget. It's a budget of France."

Speaking this month in front of the Cour des Comptes, a government financial body, Hollande said the reduction of public debt was going to be "the most important effort in 30 years."

However, some economists, including those at Citigroup, anticipate that the government's deficit reduction target will be missed, with Citi forecasting a deficit for the year of 3.7% of GDP.

Who is Francois Hollande?

Analysts predicted that Hollande would have to present a budget harsher than initially expected because of fears that otherwise France's cost of borrowing will spike, and any savings made will have to be spent on increased interest payments.

Figures released Friday by the country's national statistics institute reveal zero growth in France in the second quarter of 2012 compared with the first quarter, CNN affiliate BFM-TV reports.

However, individual spending power increased slightly over the same period, after several quarters in which it declined.

As the fifth largest economy in the world and the second largest in Europe, France's economy is a major concern to global investors. It's also the United States' third-largest trading partner in Europe, after Germany and the United Kingdom, the U.S. State Department says.

The French president is under pressure to reduce the national debt, boost growth and create new jobs, at the same time as seeking to avoid rousing public anger by making big cuts in public spending.

One-third of the 30 billion euros in savings is expected to come from cuts, with the remainder from increased taxation, Hollande said earlier this month.

This may mean companies face higher taxes -- and if that proves to be the case, it could further stifle growth and threaten the government's efforts to get those same firms hiring again.

Hollande has also vowed to slap a 75% levy on incomes higher than 1 million euros ($1.26 million) and raise taxes paid on the revenue of large fortunes.

Hollande acts over wealth tax crisis

Speaking Thursday on public television station France 2, Prime Minister Jean-Marc Ayrault said the government was aware of the gravity of its mission, and that it has a long term plan for the country's future.

He said nine out of 10 people would not be affected by the planned tax increases for the wealthiest in France.

Ayrault defended the government's forecast 0.8% growth rate for 2013 as "realistic," rejecting doubts over the figure as "defeatist."

He also said it was important to set ambitious targets to tackle rising unemployment. The country's unemployment rate stood at 10.2% as at the end of June this year, according to the national statistics institute.

France's budget announcement comes against a backdrop of unease in the 17-nation eurozone, where many governments are plagued by high debt and low growth.

Neighboring Spain announced its own budget Thursday, outlining new spending cuts, tax increases and structural adjustments aimed at bringing down its huge deficit.

The government's efforts have proven unpopular with many Spaniards, who have taken to the streets in large numbers to demonstrate against austerity measures.

Source CNN.com
 





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