UPDATE 1-Optimistic tax forecast threatens French deficit goals -auditor

Tue Feb 11, 2014 6:01am EST

Related Topics

* Risk of 2014 tax revenue shortfall up to 6 bln euros - public auditor

* Says France's financial credibility on the line

By Jean-Baptiste Vey

PARIS, Feb 11 (Reuters) - France's plans for cutting the public deficit are at risk of getting blown off course as tax revenues fall short of the government's optimistic expectations, the public auditor said on Tuesday.

In its annual report, the Cour des Comptes said there was a risk that tax revenue may come as much as 6 billion euros ($8.2 billion) short of target this year after income was overestimated last year.

"Given the numerous uncertainties and significant risks identified by the Cour, meeting the 2014 public deficit target of 3.6 percent (of GDP) is not at this point guaranteed," the president of the independent body, Didier Migaud, told journalists.

With 2013 figures not due to be published until next month, the Cour said there was a "real risk" the deficit target of 4.1 percent for last year may have been overshot, mainly because tax income fell short.

"Falling further behind on budget consolidation would lead to a divergence from our European neighbours, adding significantly to the debt burden and would gravely harm France's financial credibility," Migaud said.

France's euro zone partners have granted Paris an extra two years to bring its deficit in line with an EU limit of 3 percent of economic output by 2015.

But the extension was only made on condition that France carry out ambitious reforms, as EU Economic and Monetary Affairs Commissioner Olli Rehn stressed on Monday in an interview with Reuters.

With France's borrowing costs near record lows, Migaud said that a one percentage point increase in interest rates would add 2 billion euros to the state's debt servicing costs, which currently stand at about 52 billion euros annually.

ROSY EXPECTATIONS

The government expects tax revenue to grow 3.0 percent this year, much faster than its 2014 economic growth forecast of 0.9 percent, the Cour des Comptes noted.

"On the basis of this growth estimate, corporate, income and payroll tax seem too optimistic," its report said.

It said the government had overestimated tax revenues this year by 2-4 billion euros and that new taxes were likely to fall short by an additional 1-2 billion euros.

On the spending side of the budget, the audit office said the government was also too optimistic about planned savings, which would have to be compensated for.

Government plans to achieve 15 billion euros in savings this year would only be possible if the spending leeway traditionally built into the budget for unforeseen events was not used, leaving no margin for unexpected expenses.

President Francois Hollande aims to pick up the pace of budget savings in the following years to about 17 billion euros annually to reach a total of more than 50 billion euros between 2015 and 2017.

With the government currently scrutinising each ministry's budget for savings, Migaud urged in-depth reform rather than pruning to rein in spending.

He offered a list of measures ripe for government attention, ranging from over 100 million euros on shelved plans for a second aircraft carrier to reductions offered by the SNCF rail operator to employees' family members when they travel by train.

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