Brussels, 26/09/2012 (Agence Europe) - On Friday 28 September, France will unveil its draft budget for 2013 with some €30 billion of savings in the form of spending cuts and extra taxes in order to keep the promise made by the French president, François Hollande, of reducing the public deficit to below 3% of GDP in 2013. Quite a challenge against a backdrop of lack-lustre growth, but France's credibility among its European partners is at stake, particularly in the eyes of Germany and the financial markets. Without reining in public spending, it will not be possible for the country to throw its weight about in the current debate on strengthening Economic and Monetary Union (EMU).
French economy minister Pierre Moscovici has given a broad outline - the measures will total €37 billion and will be the biggest changes to the budget for three decades. There will be a three-pronged approach, combining a clean-up of public finance, social justice and economic dynamism. Next year, savings of €30 billion will be made (€10 billion in spending cuts and €20 billion raised from extra taxes - to be fairly divided among businesses and inhabitants), in addition to the €7 billion of savings set out in the July 2012 budget review. The plans are based on lower growth forecasts for 2013 (reduced from 1.2% of GDP to 0.8%). The new forecast is viewed as optimistic by a number of analysts, who suggest growth will be to the order of 0.4%, because it has been zero for the past three quarters.
The Socialist government is making a big thing of sharing out the pain without penalising the most vulnerable. For businesses, it is planning to have the least negative impact on growth by aiming the measures at larger companies, rather than small businesses. Small businesses will continue to receive the aid and tax cuts granted by the previous government to encourage them to invest and innovate. In terms of individuals, the taxes will fall on big earners. Two new tax bands will be created - 45% and 75% - for income above €150,000 and €1,000,000 a year respectively. The tax on those earning more than a million is a symbolic measure promised by Hollande during the presidential election campaign, and is highly controversial since several high earners have moved officially to other European countries.
This unpopular budget will be closely monitored in Brussels. The European Commission will look at the French budget plans in the light of the Commission's country-specific recommendations (endorsed by the European Summit in June 2012, (see EUROPE 10645)). The recommendations state that France is becoming less competitive and recommend that taxation be transferred from labour to consumption, an idea rejected by the French government. The recommendations also recommend greater competition in the services sector and network industries, and invite France to change its pay settlement mechanisms, encourage more people into work and encourage greater 'flexicurity' (welfare for workers but no job protection). The Commission will comment on the French budget plans on 11 November, when it publishes its Autumn Economic Forecasts.
Budget Pact. Jean-Marc Ayrault's government is at loggerheads with the left wing of the Socialist Party, which does not want to endorse legislation that would introduce into French law the Budget Pact signed by 25 Member States. Last weekend, the Ecologist Party, part of the coalition government, said it opposes the Budget Pact. The problem for the government is not ratifying the pact as such, because it has the support of the right wing (which negotiated the pact when they were in power), but to get enough votes on its own side to be able to approve it without the support of the right. (MB/transl.fl)