Rise in sales tax as French PM Fillon warns bankruptcy no longer an abstract word

“Bankruptcy is no longer an abstract word” warned French Prime Minister François Fillon at the unveiling of a series of tough, new austerity measures aimed at clearing the country’s budget deficit by 2016. 

Reuters/Gonzalo Fuentes

He said the country’s financial, economic and social sovereignty meant “prolonged collective efforts and even some sacrifices” were necessary.

France needs to save 100 billion euros a year to eliminate the budget deficit by the 2016 deadline, including 500 million euros in extra state budget savings next year.

New measures include an increase in Value Added Tax, VAT, from 5.5 per cent to seven per cent, bringing forward by a year to 2017 the increase in the state retirement age from 60 to 62  and increasing corporate tax by five per cent for companies which have an annual turnover of more than 250 million euros.

The government also hopes to reduce spending on public health by 700 million euros and will increase some social benefits by just one per cent next year in line with expected growth figures.

The prime minister also said there would be wage freeze for the President of the Republic and government ministers.

The latest austerity measures follow an announcement in mid-October by ratings agency Moody’s that France would be watched closely over the next three months to guage whether it would keep its current AAA rating which allows it to borrow money on international markets at a favourable rate.

Ahead of Fillon’s speech, communist daily L’Humanite published an opinion poll which showed that the majority of French voters are opposed to the idea that domestic policy should be dictated by the financial ratings agencies.

Fifty-three per cent of all French voters, and 62 per cent of left-wing sympathisers, think elected politicians should direct economic policy, not Moody's or Standard & Poor's.