France needs 'unprecedented' cuts

Tue, Jul 3, 2012, 01:00

FRANCE’S SOCIALIST government needs to make “unprecedented” cuts in public spending and avoid further undermining the country’s weakened competitiveness as it raises taxes in the battle against the budget deficit, the national auditor warned yesterday.

In a report ordered by president François Hollande when he took office in May, the Cour des Comptes spelt out the scale of the task facing the government in meeting France’s commitments to reduce its budget deficit to 3 per cent of gross domestic product next year and eliminate the deficit by 2017.

“2013 is a crucial year,” said Didier Migaud, the Cour des Comptes president and a former socialist parliamentarian. “The budgetary equation will be more difficult than expected because of the worse economic situation.

“The government must simultaneously cut not one but two deficits, in the public finances and in its competitiveness.”

Estimating that savings of €33 billion will be needed to hit the 2013 deficit target, the auditor said France could see its public debt hit 90 per cent of GDP this year. It pulled few punches on the country’s “far from exemplary record” on its public finances, noting that it lagged behind far behind Germany and that Italy and Spain had made twice the effort on their deficits.

“The country is in the danger zone. The risk of a surge in the debt can’t be excluded,” said Mr Migaud. The report said the required savings next year were based on a forecast of 1 per cent growth – and would follow €6bn to €10bn in additional savings needed to meet the 2012 deficit target of 4.4 per cent to compensate for low growth and lower-than-forecast tax receipts.

It pointed out that the savings figure for next year did not take into account new spending pledges already made by the government, or the repayment of some €5bn in receipts from a tax on non-resident dividends ruled out by the European authorities.

“It will require both an unprecedented curb on public expenditure and an increase in taxes,” Mr Migaud said. Prime minister Jean-Marc Ayrault is due to set out the government’s economic policy plans today, with a supplementary budget to follow tomorrow.

The government has sought to use the report to lay the blame for the fiscal predicament on the former government of Nicolas Sarkozy and give it political cover for the imposition of tough savings measures. – Copyright The Financial Times Limited 2012