France's Macron unveils tricky first budget

Paris (AFP) –


The government of Emmanuel Macron unveils its first annual budget Wednesday set to include a major tax cut for wealthy investors which he sees as crucial for his business-friendly agenda.

The 39-year-old centrist is under pressure to deliver on his campaign promises in 2018 which require a tricky balancing act of cutting spending and lowering taxes.

Macron has made a priority of trimming France's deficit in a bid to earn credibility with German Chancellor Angela Merkel and other leaders as he seeks major reforms of the European Union.

But the government has lowered its ambitions for spending cuts, setting a target of 16 billion euros ($18 billion) instead of a one-time target of 20 billion.

Taxes will also fall by less than previously planned -- seven billion euros, according to an assessment by public finance watchdog HCFP which was seen by AFP, instead of the 10 billion recently promised by Economy Minister Bruno Le Maire.

The government will stick with its plan to transform wealth taxes, a long-time demand of business groups, which will see the scrapping of an extra levy placed on financial investments.

Opponents on the left have called it a sop for the rich, while Macron insists he needs to encourage investors to fund companies in France as he seeks to lower a 9.5 percent unemployment rate.

"These tax measures from the right-wing will have a brutal and violent effect on worsening inequality," former Socialist economy minister Michel Sapin commented on the eve of the budget in an interview with Paris Match magazine.

- Deficit down -

The budget is set to include a forecast for reducing France's deficit to 2.6 percent of gross domestic product next year, under a EU-mandated limit of 3.0 percent, with economic growth seen at 1.7 percent.

On Tuesday, Macron set out his vision for far-reaching EU reforms, urging his European partners -- particularly Germany -- to go further in linking their economies, governments and armies.

But he sees it as crucial to show that France can lead by example by getting its public finances in order after a decade of running large deficits due to high public spending.

The EU's economy commissioner Pierre Moscovici welcomed the projected fall in France's deficit to under 3.0 percent this year for the first time since 2007 and then another fall in the 2018 budget.

"The average deficit in the eurozone is not 3.0 percent, it's 1.4 percent," he told France 2 television. "If you want to be an example to Europe, you have to lead by example at home."

Prime Minister Edouard Philippe has warned there will be tough choices in the new budget, saying last month that he was "not here to be nice".

Cuts to social housing subsidies, social security, short-term jobs which are partly funded by the state, and major infrastructure projects -- including a new train line between France and Italy -- are also seen as likely in the budget.

Nearly 1,600 civil service jobs will be axed, a fraction of the 120,000 public jobs Macron wants to scrap by the end of his five-year term.

Spending on the justice system, higher education and defence is likely to increase.

Defence spending has been a sore point with the military in recent years.

The head of the armed forces sensationally resigned his post this summer in a blazing row with Macron over cuts to defence spending introduced in an interim budget for 2017, passed shortly after he was elected.

- Wooing investors -

Macron came to power on a promise to make France a more attractive destination for investment, and began his presidency by pushing through reforms to the country's famously complex labour laws.

He also wants to cut corporation tax to 25 percent by 2022 -- down from 33 percent currently.

Macron, who has come out swinging against the US decision to quit a global climate pact, is also expected to include several new measures in the budget to push for a greener economy.

The environment was at the centre of a 57-billion-euro investment fund unveiled Monday that includes cash incentives for drivers to scrap heavily polluting cars.