French government trumpets fiscal rectitude heading towards 2017 vote

September 20, 2016 9:05 AM EDT

French Finance Minister Michel Sapin responds to a question as he attends the questions to the government session at the National Assembly in Paris, France, June 22, 2016. REUTERS/Jacky Naegelen

Get access to the best calls on Wall Street with's Ratings Insider Elite. Get your Free Trial here.

PARIS (Reuters) - France will bring its budget deficit into line with an EU limit for the first time in a decade next year, Finance Minister Michel Sapin said on Tuesday, casting the government as a model of fiscal rectitude seven months from a presidential election.

Outlining the 2017 budget ahead of its official publication next week, Sapin stuck to the government's target for a 2017 deficit of 2.7 percent of economic output despite an extra 5.7 billion euros in state spending.

With a wide-open presidential election looming in April, he also warned candidates promising to slash taxes that they could put France's hard-won economic credibility at risk.

"I would like to remind those who promise immediate tax cuts while leaving spending cuts for later that France's credibility is at stake," Sapin told a news conference.

"It would be tragic that all our efforts be irresponsibly squandered in a few months," he said, adding that conservatives' economic programmes would push the national debt over 100 percent of output.

Leading center-right candidates vying for their party's nomination have all pledged to put France's house in order and eventually return to a budget surplus. But they say they expect to find a trail of unbudgeted tax cuts and spending left by the Socialists that will be impossible to reverse immediately.

They also argue the spending cuts they plan to make will have to go hand in hand with lower taxes to kick-start a sluggish economy weighed down by one of the highest tax burdens in the euro zone.

Nicolas Sarkozy, a former president seeking a return to the Elysee palace in 2017, forecasts a deficit of about 4 percent next year. That would likely set him on a collision course with partners -- especially Germany -- that resent France's record as a serial breaker of EU budget rules.

Projections underpinning the 2017 budget foresaw that the public debt would ease back to 96 percent of output next year from 96.1 percent this year.

President Francois Hollande's Socialist-led government hiked taxes shortly after his election in 2012, but has been reversing the increases since then following a taxpayer backlash.

Sapin said that as a result income tax was now no higher on average than at the start of Hollande's term, although the wealthy were bearing a bigger burden.

Sapin said the extra state spending decided earlier this year to beef up security after bloody Islamist attacks, raise teachers' pay and put more unemployed people in training, will be fully offset by savings or tax measures.

As previously announced, some 5 billion euros will come from delaying a cut in corporate tax and maintaining another tax on companies' sales that was due to expire.

Low borrowing costs, mainly due to the European Central Bank's bond-buying program, will help save 1.2 billion euros, Sapin said, even though the budget erred on the side of caution and assumed that borrowing costs would rise next year.

(Reporting by Leigh Thomas and Michel Rose; Editing by Richard Lough and Catherine Evans)

Serious News for Serious Traders! Try Premium Free!

You May Also Be Interested In

Related Categories


Related Entities

European Central Bank

Add Your Comment