France to outline new deficit-cutting measures

* Government to target tax breaks and incentives

* Cuts needed to meet "sacrosanct" deficit targets

By Leigh Thomas

PARIS, Aug 24 (Reuters) - France will try to raise billions of euros in extra revenues in coming months, clamping down on tax breaks under reforms to be announced on Wednesday that aim to ensure a growth slowdown does not derail deficit reduction plans.

The measures have been pulled together by the budget and finance ministers under orders from President Nicolas Sarkozy, who interrupted his Riviera holiday for an emergency meeting earlier this month after French stocks were hit by jitters over the stability of France's top-notch triple-A credit rating.

Prime Minister Francois Fillon will outline plans to scrap tax exemptions and incentives that could squeeze as much as 10 billion euros in extra revenues in the 2012 budget. Further measures will target savings before the end of the year.

Yet eight months from a presidential election where he faces a tough battle to win a second term, Sarkozy is steering clear of the more dramatic spending cuts being imposed in Italy and Spain, targeting instead high earners who are likely to see a largely symbolic increase in tax.

The measures could target corporate tax credits and exemptions from welfare contributions on overtime, according to officials and other groups involved in consultations.

Sarkozy's conservative government aims to cut the public deficit from 7.1 percent of gross domestic product in 2010 to 5.7 percent this year and then to 4.6 percent in 2012.

"We believe the confirmation of France's determination to meet fiscal targets should prove supportive, helping to dispel any doubts about the sustainability of France's triple-A rating," Societe Generale's chief France economist Michel Martinez said.

With France under the spotlight since Standard & Poor's cut its AAA-rating on U.S. debt, government ministers in Paris have repeatedly asserted in recent weeks that their targets are "sacrosanct" even though a sputtering economy may make them harder to reach.

DIMMER GROWTH OUTLOOK

The government was originally counting on squeezing an extra 3 billion euros from the 2012 budget to meet its targets, but a fast deteriorating growth outlook means it is now eyeing a sum closer to 10 billion euros, officials say.

Targeting tax breaks is fertile ground for savings with the finance ministry estimating exemptions from taxes are worth 75 billion euros in total. Exemptions from welfare contributions are probably worth another 45 billion.

The government had based its deficit targets on expectations the economy would grow 2.0 percent this year and 2.25 percent in 2012, but many economists now expect significantly weaker growth after a stagnant second quarter.

Europe's spreading debt crisis threatened to draw in France earlier this month after speculation the country could lose its prized AAA credit rating hit the shares of big French banks.

The premium investors demand to hold lower-risk German bonds instead of French debt hit a euro lifetime record of about 90 basis points this month, even though France's borrowing costs have fallen close to record lows.

In a sign the French public is losing its traditional indifference to public finances, 54 percent of people said they were a serious problem that needed addressing even if that meant painful measures, according to an IFOP survey on Tuesday.

The measures to be unveiled on Wednesday will be included in a 2012 budget bill and in a bill updating the 2011 budget.

(Reporting by Leigh Thomas and Jean-Baptiste Vey; Editing by Catherine Bremer, John Stonestreet)