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Economy

French 2014 budget piles on the budgetary rigour

media French Finance Minister Pierre Moscovici and Budget Minister Bernard Cazeneuve Reuters/Charles Platiau

The French government plans to save 15 billion euros in public spending in 2014 and increase tax revenues by three billion euros. Despite the savings, the budget passed in cabinet on Wednesday predicts public debt at a record 95.1 per cent of GDP and a deficit of 3.6 per cent.

Under fire from business leaders and right-wing politicians on France's tax burden, the fourth highest in Europe according to Eurostat, the Socialist government promised a

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"fiscal pause", although the declaration soon led to disagreement about exactly what the phrase meant.

The budget plans to reduce the deficit principally through savings in the state's running costs, while hoping to raise tax income by three billion euros.

And it has made the most of the European Comission's two-year extension of a deadline to bring the deficit below 3.0 per cent, pushing that target back to the end of 2015 and introducing some measures intended to stimulate growth.

The proposed measures include:

  • Savings in public spending of 15 billion euros, largely through an efficiency drive;
  • Job cuts in the "non-priority" public sector, with 7,881 going in defence and 2,564 in the finance ministry, and 11,000 jobs created in education, justice and police;
  • A crackdown on tax-dodging to raise two billion euros;
  • Tax increases of one billion euros, largely from cutting tax breaks for families and increasing green taxes;
  • A one-off 50 per cent tax, not exceeding 5.0 per cent of turnover, on companies that pay executives over a million euros, estimated to concern 1,000 bosses of 470 companies and to be worth 260 million euros;
  • Reduction of VAT in construction;
  • A 1.0 per cent tax on the gross operating profit of companies with a turnover above 50 million euros;
  • Tax credits to encourage competitivity.

President François Hollande hailed that would mean "the return of growth and

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employment", while right-wing MP Jean-François Lamour accused the government of pushing taxes to an insufferable level.

The state public finance watchdog, HCFP, judged the budget's prediction of 0.9 per cent growth in 2014 "plausible" but warned that the target of reducing the structural deficit to 1.4 per cent of GDP "optimistic".

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