How France plans to save €65 billion in four years

French Prime Minister Francois Fillon unveiled his second austerity package in three months in Paris Monday, aimed at reducing the public deficit in order to preserve the country’s crucial AAA credit rating. This latest round of fiscal belt-tightening measures comes amid ongoing wrangling in the eurozone as the bloc battles to stave off the ballooning sovereign debt crisis.

“We have one objective: protect French people from the serious difficulties experienced by several European countries (…) Our economic, financial and social sovereignty demands collective and prolonged efforts, and even some sacrifices”, Fillon said in his address.

“Sacrifices” will come in the form of a mixture of tax increases and spending cuts. Fillon outlined how the government plans to save 65 billion euros by 2016, with austerity measures coming into effect from 2012.

Hike in VAT: France has a discounted sales tax of 5.5% on a range of services and products including water, cattle food, and books. The government plans to raise the discounted VAT rate to 7% from January 2012. Prime Minister Fillon said some “essential products” would be spared the tax hike.

New retirement age brought forward: The French government will speed up its flagship pension reform and raise the minimum retirement age to 62 in 2017, one year ahead of schedule. That measure should save some €4.4 billion between 2012 and 2016, according to French Prime Minister Francois Fillon.

Closing tax loopholes: Fillon wants to save an additional €2.6 billion by cracking down on tax loopholes and various tax relief schemes, known as “niches fiscales” in France. For instance, the government plans to scrap the popular Scellier scheme, which allowed investors in buy-to-let housing to offset part of the acquisition cost against income tax.

Social security cuts: The famed French social security scheme won’t be spared by the latest austerity measures as Francois Fillon announced €700 million cuts in health spending from 2012.

Temporary tax hike for big corporations: The corporate tax rate will be raised by 5% on companies with annual turnover of more than €250 million in what Francois Fillon described as a “temporary” contribution to be imposed on big corporations.

Cuts in social services and benefits: The government has decided to index housing and family benefits on the country’s anemic growth rate instead of the projected inflation rate of 2.2% in 2012.

Last but not least: Francois Fillon announced a freeze on salaries paid to French President Nicolas Sarkozy, as well as to all government ministers. However, it is not clear whether that will be enough to make French voters forget that one of Sarkozy’s first moves when he was voted into office was to grant himself a 150% pay rise.