By Daniel Flynn
PARIS, Sept 7 France's Socialist government
insisted on Friday it would press ahead with spending cuts and
promised tax reforms next year, denying reports it was watering
down flagship measures such as a 75 percent tax on the rich.
President Francois Hollande, elected in May on a pledge to
kick-start growth and raise taxes on the wealthy, said the
stagnant economy made it crucial for France to hit its public
deficit target of 3 percent of gross domestic product (GDP) next
year or risk losing investors' trust.
Hollande said that by holding state spending steady in
nominal terms next year -- excluding debt servicing and pension
payments -- his government would save 10 billion euros in
However, that would amount to just one-third of the more
than 30 billion euros in savings which Hollande says are needed
to hit next year's deficit target and stay on course to balance
the budget by the end of his five-year mandate.
With his government refusing to cut staffing levels, the
bulk of the adjustment will have to come from tax rises.
"This will be the biggest effort in 30 years," Hollande said
at a ceremony at the state auditor's office, promising
"audacious" tax reforms and other changes.
France's deficit has not slipped beneath the EU threshold of
3 percent since 2007, when it stood at 2.7 percent of GDP.
After years of crisis that have driven state debt to 90
percent of GDP, Hollande said servicing payments were now the
second largest budget item, making adjustment more complex.
Markets and EU partners alike see the spending plan as a
crucial test of Hollande's reformist mettle, but there is little
sign yet of far-reaching reforms next year.
France has not balanced its budget since 1974 and state
spending is now 56 percent of economic output - second only to
Denmark in the West.
The budget will be presented at a Sept. 28 cabinet meeting,
pushed back by two days to allow for Hollande's trip to the
United Nations' General Assembly in New York, officials said.
NO DECISION ON 75 PCT TAX
Following newspaper reports that the government was
preparing to water down a pledge to tax earnings above 1 million
euros a year at 75 percent, cabinet heavyweights quickly came
out to say it would go ahead as promised.
"President Francois Hollande made a clear, strong commitment
during the campaign to tax high earners at 75 percent," Finance
Minister Pierre Moscovici told local media. "This promise will
be strictly respected."
Labour Minister Michel Sapin, meanwhile, said the measure
would go ahead but some nuances would be introduced: while the
threshold of 1 million euros for a single person would stand, it
would be set higher for couples.
Referring to reports in right-leaning Le Figaro that artists
and sportsmen could be exempted, Sapin said the tax would be
based on average earnings over a long period so those receiving
a temporary spike in their earnings would not be hit.
He did not comment on reports in Le Figaro newspaper that
the CSG and CRDS social charges would be included in the
headline rate -- suggesting the effective rate of income tax
would be around 67 percent.
"We have not finalised the proposal ... It will be decided
next week: between the reality of next week and the suppositions
of today there may be some difference," Sapin said.
Hollande and Prime Minister Jean-Marc Ayrault both later
said that the government would not backtrack on the tax,
although they did not offer details on its scope.
"The French are going to be called on to make an effort,"
Hollande said during a visit to the eastern city of Evian.
"There will be budget savings and solidarity will be necessary,
especially from high earners who must contribute more."
Finance Minister Pierre Moscovici last week told business
leaders the government was seeking an "intelligent" way to
implement the tax without driving away investors.
Le Figaro, without citing sources, also said the government
would postpone plans to raise corporate tax on large firms to 35
percent from the current rate of 33 percent, while slashing it
to 15 percent for small businesses. ($1 = 0.7915 euros)