France to delay €1bn outlay

The French government will shelve €1 billion of planned spending this year, on top of a three-year spending freeze that kicks in in 2013, said Budget Minister Jerome Cahuzac.

President François Hollande’s five-week-old Socialist government is battling to bring its public deficit down to within a target of 4.5% of gross domestic product by the end of 2012, mainly through planned tax increases.

Prime Minister Jean-Marc Ayrault told cabinet ministers on Monday that overall spending at ministries and regional government departments would be frozen from 2013 for three years, excluding debt costs and pensions.

Cahuzac said this year’s freeze would affect all departments except the education, justice and interior ministries.

“A billion euro which should have been spent between now and the end of the year will be frozen,” he told BFM television.

Facing huge budget constraints at home, Hollande is leading a push to refocus Europe away from austerity towards measures to boost growth, including the use of unused EU structural funds for investment and joint European infrastructure project bonds.

French state spending for 2012 is expected to total around €360bn, but the government is due to announce revisions to its budget bill next week to reflect flagging growth that is hitting revenues.

The adjustments will follow a national audit office report on public finances expected to show the country will be hard pushed as things stand to meet a 2013 deficit goal of 3% of GDP.

Hollande aims to compensate for the 60,000 public sector jobs he has promised to create over five years by not replacing all workers who retire. He has also said a rise in the minimum wage will be modest.

Among the tax increases being prepared, Cahuzac said a new 3% tax on company dividends would be put in place in the months ahead and a tax-free threshold for money inherited or gifted from relatives would be lowered.

He said the government would also scrap a sales tax rise due to come into effect in October and a tax shield for the wealthy, which he said cost the state around €800m in lost revenues in 2011.

Daily, Le Parisien reported that the tax shield had cost France around €3bn since former conservative President Nicolas Sarkozy created it in 2007.

— Reuters

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