French budget leaves deficit almost untouched

The French government presented its draft budget for 2015 today, saying "the rhythm of deficit reduction is adapted to the situation" and that "no further effort will be demanded of the French, because the government – while taking the fiscal responsibility needed to put the country on the right track– rejects austerity".

The draft budget seems to ignore repeated warnings from the EU commission. Deficit spending will barely diminish, from 4.4 per cent this year to 4.3 per cent in 2015. Paris says it will comply with the EU’s 3 per cent deficit spending limit in 2017, not in 2015 as previously promised.

There was no immediate reaction from France's European partners, but Anton Boerner, the president of the main exporters' association in Germany, the BGA, told a conference in Berlin: "The French elite has still not undrstood that, in the 21st century, you can't get competitive by printing money… If that country doesn't figure a way out of the downward spiral, the euro and therefore Europe are at risk."

The government promised to cut €21 billion in spending, but the High Council of Public Finances, the watchdog on public spending, doubted those targets will be reached.

The most spectacular fiscal provision was the abolition of the lowest income tax band, which taxed revenue between €6,011 and €11,991 at 5.5 per cent. The lowest band now starts at €9,690, taxed at 14 per cent. Nine million households will benefit from the income tax reduction, which will cost the state €3.2 billion.

The government has also promised €30 billion in reduced labour costs to French businesses, through its CICE tax credit and “pact of responsibility”.

The largest portion of cutbacks – €9.6 billion – are to be made in social security, including €3.2 billion from health insurance.

The announcement that €700 million will be cut from family policies has provoked an outcry. Subsidised maternity leave will decrease from three years to 18 months.

The government budget is to be cut €7.7 billion, while the state will reduce contributions to regions, departments and towns by €3.7 billion.

However, the headings for cutbacks are vague. For example €2.1 billion is to be saved from “digitalising relations with citizens, optimising property policy, optimising purchases”.

The far right-wing National Front denounced the plan to cede €4 billion in state assets as “selling the family jewels”.

The budgets of at least four government ministries will increase. 9,421 new jobs will be created at the education ministry, whose €65,02 billion budget has risen 2.4 per cent. Higher education and research will receive an additional €45 million. There will be 1,834 new jobs at the justice ministry. Credits for housing will rise 5 per cent. The interior ministry’s budget remains untouched, though 405 new jobs are added.

After cutbacks in the last two budgets, culture, too remains untouched. The agriculture ministry is hiring 245 new civil servants, though its budget has fallen 4 per cent.

Overall, the government is recruiting 1,200 new civil servants, despite the planned loss of 7,500 defence ministry jobs in coming years. French forces are engaged in Mali, the Central African Republic and against Islamist extremists in northern Iraq.

"Obviously, we hope there will be a financial commitment from Europe," finance minister Michel Sapin told Le Monde.

On Tuesday, it was announced that French debt had surpassed the symbolic €2,000 billion mark. At the end of the second trimester, the debt stood at €2023.7 billion, equivalent to 95.1 per cent of GNP. It has doubled in the past decade.