France targets rich in bid to raise €10bn
Paris - France will seek to raise at least €10bn in extra
revenues with a package including higher taxes on the rich and cuts in tax
breaks, aimed at ensuring a slowdown does not undermine its AAA credit rating.
The package, hurriedly pulled together after French stocks
were swamped by rumours of a possible rating downgrade this month, is expected
to pare back tax exemptions and incentives worth an estimated €3bn - €4bn this
year and a further €10bn in 2012, French media and government sources said.
Prime Minister Francois Fillon convened a news conference
for 18:00 local (16:00 GMT) on Wednesday to unveil details of the package put
together under strict orders from President Nicolas Sarkozy, who interrupted
his Riviera holiday last week for an emergency budget meeting.
Eight months from a presidential vote where he faces a tough
battle for re-election, Sarkozy is steering clear of dramatic spending cuts of
the kind imposed in Italy and Spain. His government has pledged instead more
tax on high earners, in what analysts say is a symbolic gesture to sweeten the
"These reforms will be fairly spread out in order to
reduce the deficit and protect growth and jobs," Budget Minister Valerie
Pecresse told a news conference, adding there would be no wide-ranging tax
rises or reductions in welfare services.
The measures could instead target corporate tax credits and
exemptions from welfare contributions on overtime, according to officials and
other groups involved in consultations.
More belt-tightening became inevitable after France’s €2
trillion economy stagnated in the second quarter, making it impossible to meet
its deficit targets without further action.
The government had based its budget on growth of 2% this year
and 2.25% in 2012, but economists now warn that growth could dip below 1.5%
Pecresse appeared to hint on Wednesday that the government
would reduce its growth forecasts, saying: "An economic framework will be
presented with the measures this evening."
Deficit target "sacrosanct"
With France in the spotlight since Standard & Poor's
downgraded the United States, ministers have repeatedly asserted that deficit
targets were "sacrosanct" even though a sputtering economy may make
them harder to reach.
Sarkozy's conservative government aims to cut the deficit
from 7.1% of gross domestic product in 2010 to 5.7% this year and then to 4.6%t
Speculation that France might lose its prized top rating hit
the shares of French banks this month and drove the premium investors demand to
hold French debt instead of low-risk German bonds to a euro lifetime high of
about 90 basis points.
"We believe the confirmation of France's determination
to meet fiscal targets should prove supportive, helping to dispel any doubts
about the sustainability of France’s AAA rating," Societe Generale's chief
France economist Michel Martinez said.
Targeting tax breaks is fertile ground for savings with the
finance ministry estimating exemptions from taxes are worth €75bn in total.
Exemptions from welfare contributions are probably worth another €45bn.
Some of France's richest people are even offering to pay
more taxes. The head of advertising giant Publicis SA, Maurice Levy, is leading
a campaign with other wealthy French people for a special contribution to the
"I don't want it to be only symbolic, I think it should
be a real contribution," he told Reuters, saying Europe's debt crisis was
concentrating minds on seriously tackling France's burden.
In a sign the French public is losing its traditional
indifference to public finances, 54%of people said they were a serious problem
that needed addressing even if that meant painful measures, according to an
IFOP survey on Tuesday.
Even after the reform is passed, France will have more to do
to ensure the long-term viability of its finances, according to observers such
as the International Monetary Fund, which called for cuts to one of Europe's
highest levels of state spending.