French government sees EU credibility in reach with 2018 budget

PARIS (Reuters) - The French government presented tax and spending cuts on Wednesday in its first budget under President Emmanuel Macron, assuring it would restore France’s fiscal credibility in Europe.

Finance Minister Bruno Le Maire said France had to seize the opportunity presented by firm growth, expected this and next year at a six-year high of 1.7 percent, to bring its public deficit in line with EU rules for the first time since 2007.

The Finance Ministry forecast the deficit would fall below the EU-limit of three percent of output this year with a shortfall of 2.9 percent in 2017 before dropping to 2.6 percent in 2018.

With two years below the three-percent threshold, Le Maire said France was on course to exit an EU excessive deficit procedure it has faced since 2009 for falling short of the European deficit limit.

Macron needs to show France to be fiscally responsible if he is to persuade Berlin and other European capitals to rally behind his drive to overhaul the euro zone - a quest complicated by Germany’s election result on Sunday.

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“In order to recover our credibility in Europe, we have to respect our European commitments,” Le Maire told journalists as he presented the budget.

“We are the last country in Europe with Spain subject to an excessive deficit procedure,” he added, speaking a day after Macron outlined an ambitious vision for European renewal.

Though the headline deficit respects the EU rules, the sailing is unlikely to be all smooth with France’s EU partners.

Paris will have to reassure that a spike in the deficit to 3.0 percent in 2019 will be temporary as an existing payroll tax credit scheme is transformed into a permanent cut in corporate charges that year.

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France’s independent fiscal watchdog has also warned that progress bringing down the underlying structural deficit, which excludes the impact of swings in the business cycle, will fall short of EU requirements.

“We are going to convince the European Commission - I hope - that our structural effort is reasonable in light of spending cuts and economic reforms,” Le Marie said.

Budget Minister Gerald Darmanin said that budget savings would reach 16 billion euros (14.02 billion pounds), scaled down from 20 billion euros as originally planned by the government.

Le Maire said that the budget was not all about rigour with six billion euros in tax cuts for households and four billion euros for companies.

“The French need to know that we are determined to reduce their taxes,” Le Maire said.

Stronger than expected economic growth this year is offering the government some breathing space, generating better tax revenues than originally budgeted.

Reporting by Leigh Thomas; editing by Richard Lough