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Sarkozy budget to take French deficit under EU limit
Aided by brisker economic growth, France unveiled a pain-free 2005 budget on Wednesday which aims to bring the national deficit within EU limits for the first time since 2001.
The first and last budget from Finance Minister Nicolas Sarkozy, a man with presidential ambitions, included a series of cheap but high-profile tax breaks for businesses and households despite putting a lid on public spending.
The budget was presented to cabinet on Wednesday morning and the main lines released to the media for publication ahead of a 1200 GMT news conference by Sarkozy.
President Jacques Chirac has given Sarkozy the go-ahead to suspend cuts in income tax after three years of reductions that failed to prevent voters punishing the ruling UMP party in a regional election in March and a European election in June.
Instead, the budget, made easier by a rebound in government revenues due to improved economic growth, offers about 2 billion euros in tax breaks, half for businesses and the rest for people who buy a first home or inherit one, or who hire home help.
SMALL TAX CUTS
Some of those tax breaks are financed by cuts in government outlays, primarily by limiting the extent to which companies can claim discounts in welfare levies in return for limiting their employees’ work hours to 35 per week.
Many experts have also said a lot of households will not be any better off ultimately, because other levies and taxes have been on the rise recently, such as a levy pensioners have to pay into the welfare system, known as the CSG tax.
Of less immediate interest to voters is the bottom line of the budget -- public spending will not rise above the rate of inflation and the national deficit will be cut by about 10 billion euros, to 2.9 percent of gross domestic product (GDP).
The draft budget is based on a growth forecast of 2.5 percent next year, which is the same rate of growth the government expects for 2004.
France, like Germany, has failed to respect a rule in the European Union’s Stability and Growth Pact that says national deficits should not top 3 percent of GDP.
Sarkozy, 49, vowed when appointed to bring France’s deficit below the EU limit in 2005. It will be about 3.6 percent this year.
This has limited his room for manoeuvre elsewhere, compromising Chirac’s election promises in 2002 that income tax would be cut by more than 30 percent by 2007. The government is only one third of the way there.
After just six months in the post, Sarkozy is keen to reap the maximum political benefit from his first and last budget before he steps down in November to head the ruling conservative UMP party, regarded as a stepping stone to the presidency.
The televised news conference at 1200 GMT offered him a perfect chance to portray himself as the man who has put the economy on the road to recovery. It had already started turning the corner when he took over as minister in April.
Chirac, who has a love-hate relationship with the outspoken Sarkozy, has forced the minister to choose between his cabinet post and leading the UMP (Union for a Popular Movement) -- a post which gives him a major base for running in the 2007 presidential election.
Aided by brisker economic growth, France unveiled a pain-free 2005 budget on Wednesday which aims to bring the national deficit within EU limits for the first time since 2001.
The first and last budget from Finance Minister Nicolas Sarkozy, a man with presidential ambitions, included a series of cheap but high-profile tax breaks for businesses and households despite putting a lid on public spending.
The budget was presented to cabinet on Wednesday morning and the main lines released to the media for publication ahead of a 1200 GMT news conference by Sarkozy.
President Jacques Chirac has given Sarkozy the go-ahead to suspend cuts in income tax after three years of reductions that failed to prevent voters punishing the ruling UMP party in a regional election in March and a European election in June.
Instead, the budget, made easier by a rebound in government revenues due to improved economic growth, offers about 2 billion euros in tax breaks, half for businesses and the rest for people who buy a first home or inherit one, or who hire home help.
SMALL TAX CUTS
Some of those tax breaks are financed by cuts in government outlays, primarily by limiting the extent to which companies can claim discounts in welfare levies in return for limiting their employees’ work hours to 35 per week.
Many experts have also said a lot of households will not be any better off ultimately, because other levies and taxes have been on the rise recently, such as a levy pensioners have to pay into the welfare system, known as the CSG tax.
Of less immediate interest to voters is the bottom line of the budget -- public spending will not rise above the rate of inflation and the national deficit will be cut by about 10 billion euros, to 2.9 percent of gross domestic product (GDP).
The draft budget is based on a growth forecast of 2.5 percent next year, which is the same rate of growth the government expects for 2004.
France, like Germany, has failed to respect a rule in the European Union’s Stability and Growth Pact that says national deficits should not top 3 percent of GDP.
Sarkozy, 49, vowed when appointed to bring France’s deficit below the EU limit in 2005. It will be about 3.6 percent this year.
This has limited his room for manoeuvre elsewhere, compromising Chirac’s election promises in 2002 that income tax would be cut by more than 30 percent by 2007. The government is only one third of the way there.
After just six months in the post, Sarkozy is keen to reap the maximum political benefit from his first and last budget before he steps down in November to head the ruling conservative UMP party, regarded as a stepping stone to the presidency.
The televised news conference at 1200 GMT offered him a perfect chance to portray himself as the man who has put the economy on the road to recovery. It had already started turning the corner when he took over as minister in April.
Chirac, who has a love-hate relationship with the outspoken Sarkozy, has forced the minister to choose between his cabinet post and leading the UMP (Union for a Popular Movement) -- a post which gives him a major base for running in the 2007 presidential election.
