France took a radically new line on its public finances today, unveiling the toughest spending cuts in 50 years to bolster its position as a key player in the euro zone and balance its books.
President Nicolas Sarkozy's government announced a budget that imposes unprecedented cuts to curb soaring overspending and saves billions by closing tax loopholes, with the economy predicted to grow by 1.5% this year.
The measures are aimed at reining in a public deficit that is predicted to hit a record 7.7% of gross domestic product in 2010, far above the 3% limit laid down by European Union rules. The government's budget deficit will hit €152 billion, falling to €92 billion in 2011.
The overall public deficit reflects spending by the central government, local authorities and social welfare bodies. It is subject to EU regulations and is closely watched by money markets and by France's EU partners.
Finance Minister Christine Lagarde will increase revenue by closing tax loopholes worth €9.4 billion and has vowed to cut spending by allowing 31,638 government employees to retire without being replaced.
Some of the extra cash will come from tax increases on previously favoured categories of worker and on some insurance and property investments. €1 billion will come from raising VAT on domestic Internet, television and telephone connections.
The government insists the budget is not an austerity measure, arguing that France's predicament is different from that of such troubled European economies as Greece and Spain.
'We want to break with a tradition that makes our country the European champion of public spending,' Budget Minister Francois Baroin said.
'In this sense the budget is historic. Never in the last 50 years have we seen a 2% reduction in the public deficit in a year. The effort will continue until public finance is balanced,' the Minister said.
Paris has promised the European Commission and fellow EU members that the overall public deficit will be reduced to 6% next year, cut down to the 3% limit by 2013 and then to 2% in 2014.
Such a reduction so quickly is widely regarded as a huge undertaking, and a correction on this scale has never been achieved in modern French history. If the massive strikes and street protests that greeted Sarkozy's pension reforms plan are a guide, it will face stiff opposition.
