France to announce deep budget cuts

Expected $11bn in spending cuts and tax increases aimed at keeping finances under control and boost credit rating. Last Modified: 07 Nov 2011 06:33

France has experienced demonstrations and strikes from a public angry at the imposition of cutbacks [File: AFP] The French government is expected to announce up to $11bn in spending cuts and tax increases, to boost its credit rating and rein in its deficit. "The 2012 budget will be one of the most rigorous budgets that France has seen since 1945 ... hour of truth has arrived" - Francois Fillon, French prime minister The move is being seen as major gamble for President Nicolas Sarkozy, six months before an election. His government says extra savings are urgently needed to keep France's finances under control, since it cut its growth forecast for next year to one per cent from 1.75 per cent last week. The cuts, which Francois Fillon, the French prime minister, is expected to announce at 11:00 GMT on Monday, come on top of $16bn in savings the government announced just three months ago. Like other European countries struggling with public finances, France has experienced demonstrations and strikes from a public angry at the imposition of spending cuts during hard times. Ratings agencies have been hinting they could cut France's prized top credit rating because of its slowing growth and its potential liability for the cost of bailouts in the European debt crisis. Buidget cuts come at a politically sensitive moment for Sarkozy, whose popularity ratings are low [Reuters] Without ever mentioning the word "austerity", ministers from Sarkozy's centre-right government spent the weekend defending the need for fiscal vigiliance. "The 2012 budget will be one of the most rigorous budgets that France has seen since 1945," Fillon said on Saturday, warning that France's "hour of truth has arrived". Ministers have given no concrete details on where the cuts would come from, but said they would be "equitable". Francois Baroin, the French finance minister, told the RTL radio station on Sunday the measures will be balanced evenly between spending cuts and tax rises. The Les Echos newspaper reported on Sunday that the transition to France's higher retirement age of 62 would now take place in 2016 or 2017, rather than 2018. Securing a rise in the retirement age to 62 from 60 was a key political victory last year - but a highly unpopular move - for Sarkozy, who said it was necessary to keep France's ballooning pension deficit in check. Speeding it up would mean saving billions in coming years by delaying payments to retirees. Budget gamble The newspaper Journal du Dimanche reported that Sarkozy's government could also raise the value added tax (VAT) rate in certain sectors from 5.5 per cent to 7.0 per cent, reversing an earlier policy to lower it. The government might also place a corporate tax on businesses with annual revenues over $68bn, the paper said. "[Raising the VAT rate so soon after lowering it would be] "the proof of inconstancy, political incoherence" - Francois Hollande, French Socialist party's leader Baroin denied speculation that French workers would be asked for an additional "day of solidarity" in which salaried workers work for free one day, their pay going to the state. France is trying to reduce its budget gap from 5.7 per cent of Gross Domestic Product (GDP) this year to 4.5 per cent next year. It hopes to reach an EU-mandated limit of three per cent of GDP by 2013. Preserving France's coveted AAA credit rating through deficit reduction plans has been an important goal of Sarkozy, who in recent months has cast himself as a responsible leader amid the turmoil of the seemingly unending eurozone crisis. The cuts come at a politically sensitive time for Sarkozy, whose popularity ratings are low six months from a presidential election in which he is widely expected to seek a second term. His expected Socialist presidential challenger, Francois Hollande, said on Saturday that raising the VAT rate so soon after lowering it would be "the proof of inconstancy, political incoherence".

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