French Budget Plan Calls for €1 Billion in Spending Cuts

The plan, which would continue a freeze on new spending for a second year in 2012, will help to bring the budget deficit down to 3 percent of gross domestic product in 2013, 2 percent in 2014, and to 1 percent in 2015, the government said.

That should reduce the debt from 87.4 percent of G.D.P. next year to 87.3 percent in 2013, it said, still well above the European Union limit of 60 percent.

“Reducing the public debt is a priority,” the president’s office said after the cabinet approved the budget proposal. “It starts with cutting the public deficit. This budget confirms the inviolable nature of the medium-term trajectory to restore balanced budgets.”

Mr. Sarkozy is seeking to shrink the budget — after debt and pension payments — for the first time since 1945. With the French economy stagnating and members of his inner circle caught up in various scandals, he could face a strong challenge from the Socialists in the May 2012 presidential election.

The left gained control of the Senate on Sunday for the first time in decades, meaning the budget could be in for a frosty reception in that body, though the lower house, controlled by the government, has the decisive vote.

The shock of the United States losing its AAA rating from Standard Poor’s this summer and the sell-off of French banking shares that has accompanied the intensification of stress on the euro zone have focused attention on French national finances, despite assurances from the major credit ratings agencies that France’s AAA rating remained “stable” for now.

The government in August said it would seek €10 billion, or $13.6 billion, more in revenue next year, and cut spending by another €1 billion. Mr. Sarkozy is raising corporate taxes, imposing a surtax on incomes of €500,000 or more annually, and increasing taxes on soft drinks, liquor and cigarettes.

The government said it would also continue its policy of hiring only one new civil servant for every two who retire.

The task of improving the public accounts is made all the more difficult by the possibility that the crisis in the euro zone will bring a recession. The plan announced Wednesday assumes 2012 economic growth of 1.75 percent, the level to which the government had revised down this year’s outlook, but the French economy was essentially at a standstill in the second quarter.

Still, France has some advantages, the statement noted, including relatively low household debt and high savings rates.

Article source: http://www.nytimes.com/2011/09/29/business/global/france-announces-sharply-reduced-budget-for-2012.html?partner=rss&emc=rss