Hollande cuts against grain to reduce French deficit | Business| Economy and finance news from a German perspective | DW | 28.09.2012
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Hollande cuts against grain to reduce French deficit

Unlike many Western nations that have implemented massive rollbacks in an effort to reduce budget deficits, French President Francois Hollande has said France will rely on raising taxes to bridge the financial gap.

Hollande unveiled his proposed 2013 budget on Friday, committing France to an austerity program seeking to save 30 billion euros ($39 billion).

That figure would bring France toward its goal of reducing its deficit to 3 percent of gross domestic product in 2013. This year, France's deficit is 4.5 percent of GDP.

Describing the fiscal plan as a "fighting budget," Prime Minister Jean-Marc Ayrault said it aimed to bring back confidence by breaking the "spiral of debt" that was getting ever bigger.

The 30 billion euros are planned to be raised through tax increases on households and companies to the tune of 20 billion euros, as well as a freeze on government spending, contributing another 10 billion euros.

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French budget includes wealth taxes

The tax increases include a tax of 75 percent on annual earnings of over 1 million euros, and a new 45-percent band for revenues over 150,000 euro.

In addition, higher taxes on dividends and cuts to existing tax breaks are expected to bring in several billion euros.

Experts fear the tax hikes and spending cuts will slow the French economy further and increase unemployment, which is already at a 10-year high. Latest data released on Friday confirmed zero economic growth for the second quarter, marking nine months of stagnation in Europe's second biggest economy.

Elie Cohen, director of research at the state-funded CNRS think tank, told Reuters news agency that deficit reduction of 1.5 percent was a considerable effort "at the best of times," adding that in a period of zero growth it would be "exceptional."

uhe/msh (Reuters, AFP, dpa)

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