Sunday

29th May 2016

France plans budget cuts in 2014

  • French President Francois Hollande is under pressure to deliver on promised budget cuts (Photo: consilium.europa.eu)

France is to cut its budget next year for the first time in over five decades in a bid to meet an EU deadline on deficit reduction.

"This is the first time that we will propose such a reduction in parliament. It is a structural effort," French Prime Minister Jean-Marc Ayrault said Tuesday (25 June) when presenting a planned cut of €1.5 billion to the almost €400 billion to be spent next year by the government.

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Ayrault said state spending has increased continuously since the beginning of the Fifth Republic, in 1958.

Half of the budget cuts will hit ministerial budgets while the other half will target support to local governments.

France is under pressure from the EU, Germany and the International Monetary Fund to deliver on promises to reform its economy and bring its deficit in line with EU rules.

But French President Francois Hollande was granted extra time to reduce the budget deficit, which has to fall below 3 percent of the country's economic output by 2015.

The government aims to reach a deficit of 3.7 percent of GDP this year, but the financial committee of the French Parliament on Tuesday poured cold water on these projections, warning that the real deficit may rise to four percent as the economy is still in recession and tax revenues weaker than expected, Le Figaro reported.

Finance minister Pierre Moscovici downplayed the warning.

"Public spending was under control in 2012 and will be under control in 2013," Moscovici told French radio RTL. Any adjustments to the forecast - if needed - would only be made in a few months, he added.

The French economy is contracting by 0.2 percent and will only rebound at the end of the year, the IMF said earlier this month.

Hollande, the most unpopular president in decades, has failed to deliver on his promise of 0.1 percent growth on which he campaigned before being elected last year.

Finance ministers baulk at tax-avoidance rules

Member states will discuss again in June a proposed directive to outlaw practices used by large companies to avoid paying taxes. Meanwhile, the European Parliament makes progress on its probe of Panama Papers.

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