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France

French government unveils cost-cutting 2013 budget

Latest update : 2012-09-28

The French government will be looking to strike a balance Friday when it unveils a 2013 budget that aims to reassure investors and financial markets while hiking taxes on businesses and the rich in a bid to slash deficits.

The French government will be looking to strike a balance on Friday when it unveils a 2013 budget that aims to reassure investors and financial markets while also hiking taxes on businesses and the rich as part of a plan to slash deficits.

Presenting his first annual budget since his election last May, Hollande's credibility is on the line as he seeks to rein in public finances amid scepticism that his lofty targets can be met.

Officials have said that some €30 billion must be slashed from the budget if the government’s stated goal of reducing the deficit to 3% of GDP in 2013 is to be met, a steep drop from the forecast of 4.5% this year.

The tax-and-slash budget will seek an extra €10 billion in taxes from high-income households and another €10 billion in new corporate taxes while implementing €10 billion in spending cuts.

In televised statements on Thursday, Prime Minister Jean-Marc Ayrault vowed that the 3% deficit target would be met, saying it was vital to avoid rising borrowing rates. “If we give up our aim of cutting 3% of the public deficit by 2013, then right away interest rates will rise and we'll be in the same position as Italy or Spain,” he said. “I don't want that -- I want to stop this drifting debt.”

"We cannot continue with the debt and deficits that we have," he added.

France has so far been spared the rise in government borrowing rates that has plagued other eurozone members, instead paying historically low interest rates as investors look for safer bets. But suspicions that Hollande is not taking debt-cutting seriously could see the markets turn on France and send borrowing costs up.

Ayrault also stood by the government's forecast of 0.8% growth for 2013, saying it was "attainable" -- despite concerns from some economists that the forecast is too optimistic.

The budget is also expected to introduce reforms that will tax capital gains, interest and dividends as regular income, along with a controversial 75% tax on incomes of more than €1 million.

Ayrault said the top tax rate would affect only 10% of French taxpayers. "In constant incomes, nine out of 10 French taxpayers will not be affected by the tax increases," he said. "These new measures spare the middle and working classes."

He said the 75% rate would affect only a "small minority" of between 2,000 and 3,000 taxpayers. The premier also stated that there would be no increase in either the value-added tax or the country’s social contribution tax in 2013.

Hollande has tried to avoid any appearance that his government is pushing the same kind of austerity measures that have sparked sometimes violent protests in Greece and Spain. Unions and leftwing groups have already threatened to launch strikes and protests if his Socialist government imposes too many cuts.

But as new figures this week showed that unemployment surpassed three million in August for the first time since 1995 and with his popularity ratings falling steadily, Hollande is under increasing pressure to show results, one way or another.

(FRANCE 24 with wires)

 

Date created : 2012-09-28

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