UPDATE 2-French 2014 budget seeks savings, taxes households

Wed Sep 25, 2013 1:47pm EDT

Related Topics

* Budget sees 0.9 pct GDP growth, deficit at 3.6 pct of GDP

* Focuses on savings, but households still see tax hikes

* Businesses will see smaller tax burden

* French finance minister in Brussels on Thursday

By Ingrid Melander and Leigh Thomas

PARIS, Sept 25 (Reuters) - France sought on Wednesday to appease public anger over tax hikes and EU concerns over its finances with a 2014 budget bill that focuses largely on finding savings.

But while businesses will face a smaller tax burden to help boost competitiveness, households will be hit by higher taxes to help cut the deficit, a move that could hurt purchasing power.

The Socialist government's 2014 budget bill faces close scrutiny from the European Commission and EU powerhouse Germany, which have given Paris two extra years to bring the deficit in line with EU rules but want to see more reforms and a credible plan to cut spending.

The budget "has two objectives: stimulate growth and boost jobs," Finance Minister Pierre Moscovici said as he announced a public deficit target of 3.6 percent of economic output, less than this year's 4.1 percent but bigger than initially forecast.

The government has planned 15 billion euros ($20 billion) in savings next year and 3 billion extra revenues from higher taxes and fighting tax evasion. It also aims to collect another 6 billion euros from a previously announced sales tax increase.

But rating agencies and analysts have cast doubt on France's ability to switch its budget focus from tax hikes to reining in spending, noting the euro zone's second-largest economy has a poor track record on the latter.

The government, which sees gross domestic product (GDP) growing 0.9 percent next year, says the budget puts it on track to cut its public deficit below the EU cap of 3 percent of GDP in 2015, but France's new fiscal watchdog warned of risks that revenue estimates were too high and spending forecasts were shaky.

"Your growth forecast is plausible but the macroeconomic scenario is fragile, especially in terms of employment," the head of the fiscal watchdog, Didier Migaud, said.

Dogged by months of steadily rising jobless figures, the government is counting on employment to grow 0.6 percent next year after an estimated 0.1 percent fall this year.

Data released on Wednesday showed that jobless claims fell in August for the first time in over two years, although this was due partly to subsidised jobs and an unusually high number of people dropping off the register.

"TAX SATURATION"

Businesses and voters have been hit by 70 billion euros in tax hikes over the past three years and Moscovici himself has talked of "tax saturation" among the general public.

The government, worried about next year's local and EU elections, insists the 2014 tax rises are much smaller than in previous years.

But next year the government expects to collect 75.3 billion euros in income tax compared to 71.9 billion in 2013, and the sales tax rise will also hurt households.

"They're putting into practice a strategy to preserve or improve businesses' competitiveness at the expense of consumers' purchasing power," BNP Paribas economist Dominique Barbet said.

Moscovici will travel to Brussels on Thursday to discuss the budget with EU Monetary Affairs Commissioner Olli Rehn, who said earlier this week France should speed up reforms.

The government announced a change in corporate tax policy by scrapping an annual flat tax on top of other levies and introducing a new one based on operating profits.

It will, as planned, slap a 75 percent tax on salaries exceeding 1 million euros per year, a rate that includes social contributions and will be levied on firms.

Overall, businesses will see a stable tax level next year, but the burden will end up being smaller thanks to 10 billion euros in tax breaks meant to boost competitiveness.

A new carbon tax will bring in 340 million euros in 2014, rising gradually to 4 billion euros in 2016.

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