France's government budget plunged deeper into the red in July, with tax returns slumping in the first seven months of the year indicating the severity of the economic downturn, the Budget Ministry said today.
The ministry said the state deficit amounted to €109 billion between January and July against a €51.4 billion shortfall over the same period in 2008.
The state deficit focuses just on government accounts and excludes items such as welfare spending. As such, it makes up only a part of the overall public deficit as defined by the European Union's Maastricht Treaty.
The ministry said government spending rose 5.3 per cent in the first seven months of the year to €215.25 billion, thanks largely to a stimulus plan which pumped some €8.5 billion into the economy between January and July.
Over the same period, government revenues dropped 23.5 per cent to €133.76 billion, the ministry said.
Tax returns make up the vast majority of these revenues and plunged €37.5 billion to €123 billion.
Corporate tax receipts slumped €24.3 billion in the first seven months and sales tax revenues fell €7.7 billion, hit partly by government reimbursements tied to the stimulus package.
Nonetheless, the continuing decline in sales taxes appears to contradict second quarter GDP data for France, released last month, which showed the economy growing a surprise 0.3 per cent after four consecutive quarters of contraction.
Statistics office INSEE said the Q2 rebound was led by a 0.3 per cent increase in consumer spending - one of the mainstays of the economy.
The government originally predicted its budget deficit would be just €52 billion for the whole of the year, but the figure has been pushing steadily higher due to the recession.
However, the deficit tends to ease by year end, as more tax revenues pour into state coffers, and the budget ministry has forecast the full year figure will be between €125-130 billion - €85 billion of which it blames directly on the downturn.
"The only piece of good news (today) is that the current economic normalisation will also result in some stabilisation of public accounts in 2010, at a lower level of deficit," said Dominique Barbet, an economist with BNP Paribas.
The French government has predicted that its public deficit would come in at between 7.0 and 7.5 per cent this year.
However, Economy Minister Christine Lagarde told Reuters this week the figure was likely to be higher.
"The deficit is bound to be different from the forecast. Why is that?...the corporate tax in particular has been lower, significantly lower than expected," she said.
Reuters