UPDATE 1-France to reallocate 2 bln euros for job creation

Sun Jan 6, 2013 2:25pm EST

Related Topics

* Budget minister says to raise budget reserves to 8.5 bln euros

* Says government job plans may need extra funds

* Tax on wealthy to be amended, included in 2014 budget

* No plans to increase taxes further

PARIS, Jan 6 (Reuters) - France will reallocate 2 billion euros ($2.6 billion) from its 2013 budget to state-aided job creation as part of efforts to stem unemployment, Budget Minister Jerome Cahuzac said on Sunday.

With joblessness at a 13-year high 10.3 percent, President Francois Hollande has promised to turn things around this year and hopes that plans to create thousands of subsidised jobs and incentives for companies to hire young workers kick in quickly.

Speaking on Europe 1 radio, Cahuzac said the government would raise its 6.5 billion euro budget reserve - usually kept for natural disasters or military operations - as a precaution.

"At my request, the president and prime minister decided to increase this reserve by 2 billion euros because we think, notably that for our job policy, we'll need more money to finance state-aided jobs," Cahuzac said.

The minister said the funds would not come by increasing deficits or taxes but from existing budgets.

Hollande's administration is struggling to stop losses of industrial jobs while curbing public spending and raising taxes to try to slash debt in a stagnant economy.

A survey by IFOP for weekly newspaper Le Journal du Dimanche on Sunday indicated three quarters of respondents did not believe Hollande would be able to keep his promises on jobs.

The president, who is carrying out at least one visit a week across France to explain his policies, is trying to win back voters who are increasingly unhappy over the economy and disillusioned by government communication gaffes.

NO MORE TAX HIKES

Hollande has walked a tightrope since taking power in May as he tries to square election promises with demands of financial markets without infuriating his government's left-wingers.

Famous for having once said that he disliked rich people, he vowed from day one to fight Europe's focus on austerity, and partially reversed an increase in the retirement age.

After six months in power, Hollande announced market-friendly moves to raise sales taxes and fund tax relief for companies, explaining that the crisis made this necessary.

He also capitulated to furious entrepreneurs who revolted over plans to raise capital gains taxes in 2013, agreeing to scrap the measure for small business owners.

The decision by France's Constitutional Court in December to strike down Hollande's symbolic campaign pledge to impose a 75 percent tax rate on annual income of over 1 million euros was a political blow to the Socialist leader.

Cahuzac said the government would not abandon the measure, but amend it so that it meets constitutional requirements with a view to including it in the 2014 budget later this year.

He said the rate could be reduced and may last beyond the two years originally planned for the 75 percent rate.

After 20 billion euros in tax hikes in the 2013 budget as Paris tried to get its deficit below a European Union ceiling of 3 percent of economic output by year-end, Cahuzac ruled out more income tax increases during Hollande's presidency.

"We have asked for a considerable effort in 2013," Cahuzac said. "One needs tax stability, so this is the policy of the government for its term in office. Asking for more would probably be too much."

Despite analysts cutting forecasts for growth this year, Cahuzac said the government stuck by its 0.8 percent estimate.

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