France’s two-week-old Socialist government will announce today a mix of tax increases and spending cuts, seeking to meet deficit-reduction goals and avoid a bond-market punishment.
The plan will reverse wealth-tax cuts and breaks for employers pushed through by former President Nicolas Sarkozy. President Francois Hollande has promised measures, such as a 75- percent tax rate for income of more than 1 million euros ($1.26 million), and special taxes for banks and oil companies.
France’s national auditor said July 2 that the government needs between 6 billion euros and 10 billion euros ($7.5-$12.5 billion) in savings this year to meet its 2012 target of a deficit equal to 4.5 percent of economic output. For next year, it needs to find 33 billion euros in savings to hit its target of 3 percent. Hollande has delayed the eventual goal of a balanced budget to 2017 from Sarkozy’s 2016.
“Debt is a question of sovereignty,” Prime Minister Jean- Marc Ayrault told parliament yesterday. “An indebted France is a dependent France: dependent on rating agencies, dependent on financial markets.”
France pays about 2.54 percent to borrow for 10 years, compared with 6.21 percent for Spain and 5.61 percent for Italy. The spread between French and German bond yields is at about 100 basis points, down from more than 140 points in mid-May.
Today’s “rectifying budget” for 2012 will be announced after a 10 a.m. cabinet meeting.
The government has already signaled that spending will need to be cut. For its 2013-2015 budget, the government plans to reduce the number of civil-service jobs by 2.5 percent annually and reduce operating costs -- including car fleets -- by 10 percent next year, Le Figaro reported last month.
Ayrault has issued orders to all ministries except education and justice to cut spending by 2.5 percent immediately.
Other efforts are more symbolic. Hollande cut salaries for himself and for ministers by a third at his first cabinet meeting, fulfilling an election promise. French ministers will now be paid 9,940 euros a month instead of the 14,200 euros under the previous president.
Hollande takes the train to European Union summits in Brussels; Sarkozy used to fly. Foreign Minister Laurent Fabius will fly commercial to Japan and China next week, whereas his predecessor used a government Falcon for such trips.
The wine delivered yesterday at Matignon, Ayrault’s workplace and residence, was Domaine de Sauvageonne, from the southern region of Languedoc, retailing for about 10 euros per bottle.
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