French budget launches attack on deficit

President Nicolas Sarkozy's government launched an attack on France’s rising deficit on Wednesday in a budget designed to increase revenue and cut spending. Budget Minister Francois Baroin described it as “historic”, aiming to cut the public deficit by two per cent in a year. The opposition socialist party described it as a “real austerity plan” which would hit the middle classes.

(Photo: Reuters/Philippe Wojazer)

The budget, presented by Finance Minister Christine Lagarde and Baroin, says the economy will grow by 1.5 per cent this year, two per cent in 2011 and 2.5 per cent a year from 2012 to 2014, while inflation will rest at a modest 1.5 per cent in 2010 and 2011.

The public deficit will far exceed the European Union’s 3 per cent limit, reaching 7.7 per cent of gross domestic product in 2010, with the central government’s budget deficit set to reach 152 billion euros before falling to 92 billion euros in 2011, according to projections.

Increases in revenue will be achieved by closing tax loopholes thought to be worth 9.4 billion euros and cuts in spending, with more than 30,000 government workers to retire without replacement.

Other money-spinning measures include tax increases on previously favoured categories of workers and on some property and insurance investments, as well as telephony, internet and television connections.

The government called France’s deficit-cutting measures “historic”.

“We want to break with a tradition that makes our country the European champion of public spending,” Budget Minister Francois Baroin told the Le Monde daily. “Never in the last 50 years have we seen a two per-cent reduction public deficit in a year. The effort will continue until public finance is balanced.”

Although the leader of the opposition socialist party, Martine Aubry, called the budget “a real austerity plan” which would “reduce spending that was necessary for maintaining growth”.

Aubry told French television that it would affect the middle class and “not those who really have money”.

France has promised the European Commission that it would reduce its overall public deficit to six per cent next year, and conform to the three per cent limit by 2013.