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09:41, 23 October 2014 Thursday
Update: 10:23, 08 September 2012 Saturday

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France's Hollande pledges spending cuts, tax reforms
France's Hollande pledges spending cuts, tax reforms

Hollande said that by holding state spending steady in nominal terms next year -- excluding debt servicing and pension payments -- his government would save 10 billion euros in inflation-adjusted terms.

World Bulletin/News Desk

France's Socialist government insisted on Friday it would press ahead with spending cuts and promised tax reforms next year, denying reports it was watering down flagship measures such as a 75 percent tax on the rich.

President Francois Hollande, elected in May on a pledge to kick-start growth and raise taxes on the wealthy, said the stagnant economy made it crucial for France to hit its public deficit target of 3 percent of gross domestic product (GDP) next year or risk losing investors' trust.

Hollande said that by holding state spending steady in nominal terms next year -- excluding debt servicing and pension payments -- his government would save 10 billion euros in inflation-adjusted terms.

However, that would amount to just one-third of the more than 30 billion euros in savings which Hollande says are needed to hit next year's deficit target and stay on course to balance the budget by the end of his five-year mandate.

With his government refusing to cut staffing levels, the bulk of the adjustment will have to come from tax rises.

"This will be the biggest effort in 30 years," Hollande said at a ceremony at the state auditor's office, promising "audacious" tax reforms and other changes.

France's deficit has not slipped beneath the EU threshold of 3 percent since 2007, when it stood at 2.7 percent of GDP.

After years of crisis that have driven state debt to 90 percent of GDP, Hollande said servicing payments were now the second largest budget item, making adjustment more complex.

Markets and EU partners alike see the spending plan as a crucial test of Hollande's reformist mettle, but there is little sign yet of far-reaching reforms next year.

France has not balanced its budget since 1974 and state spending is now 56 percent of economic output - second only to Denmark in the West.

The budget will be presented at a Sept. 28 cabinet meeting, pushed back by two days to allow for Hollande's trip to the United Nations' General Assembly in New York, officials said.

Following newspaper reports that the government was preparing to water down a pledge to tax earnings above 1 million euros a year at 75 percent, cabinet heavyweights quickly came out to say it would go ahead as promised.

"President Francois Hollande made a clear, strong commitment during the campaign to tax high earners at 75 percent," Finance Minister Pierre Moscovici told local media. "This promise will be strictly respected."

Labour Minister Michel Sapin, meanwhile, said the measure would go ahead but some nuances would be introduced: while the threshold of 1 million euros for a single person would stand, it would be set higher for couples.

Referring to reports in right-leaning Le Figaro that artists and sportsmen could be exempted, Sapin said the tax would be based on average earnings over a long period so those receiving a temporary spike in their earnings would not be hit.

He did not comment on reports in Le Figaro newspaper that the CSG and CRDS social charges would be included in the headline rate -- suggesting the effective rate of income tax would be around 67 percent.

"We have not finalised the proposal ... It will be decided next week: between the reality of next week and the suppositions of today there may be some difference," Sapin said.

Hollande and Prime Minister Jean-Marc Ayrault both later said that the government would not backtrack on the tax, although they did not offer details on its scope.

"The French are going to be called on to make an effort," Hollande said during a visit to the eastern city of Evian. "There will be budget savings and solidarity will be necessary, especially from high earners who must contribute more."

Finance Minister Pierre Moscovici last week told business leaders the government was seeking an "intelligent" way to implement the tax without driving away investors.

Le Figaro, without citing sources, also said the government would postpone plans to raise corporate tax on large firms to 35 percent from the current rate of 33 percent, while slashing it to 15 percent for small businesses.



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