France unveils €18.6bn plan for major cuts to save its AAA rating
France unveiled tax increases and spending cuts amounting to €18.6bn for next year and 2013 to defend its triple-A rating as growth slows and Europe's debt crisis deepens.
The country will increase some levies on large companies, push up the lower end of its range of value-added taxes and curb welfare spending, Prime Minister Francois Fillon said yesterday.
"French people must roll up their sleeves," Mr Fillon said. "We have one goal: to protect the French people from the severe difficulties faced by some European countries."
The austerity plan is the second announced by President Nicolas Sarkozy's government since August, when €11bn of budget tightening for next year was set out. The latest round of measures were unveiled about six months before France's presidential elections.
"The first significant moves to present a leaner budget illustrate that real austerity is beginning in France," said Pierre-Olivier Beffy, an Exane BNP Paribas economist in Paris.
The plan for a second round of budget cuts was flagged by Mr Sarkozy in a televised address to the nation on October 27. France has cut its growth forecast to about 1pc next year from the 1.75pc it previously predicted, hurting tax receipts.
The government forecasts 2pc growth in 2013.
France wants to shrink its deficit to 3pc of GDP in 2013 and is aiming for a balanced budget in 2016.
The government expects the plan unveiled yesterday to trim the budget deficit by €7bn this year and €11.6bn in 2013.
The value-added tax increase will raise €1.8bn next year and the same amount in 2013. Scrapping indexation of income and wealth taxes will bring in €1.7bn in 2012 and €3.4bn the following year.
Firms with revenue of over €250m will pay an additional level equal to 5pc of their assessed tax, just for the fiscal years 2011 and 2012 -- a measure that will raise €1.1bn in each of the two years.
"All our citizens are asked to face the demands of this plan," Mr Fillon said.