France slashes growth hope as further cuts on cards

French prime minister Jean-Marc Ayrault has slashed his country’s official growth forecasts, paving the way for a slew of cuts next year that are bound to anger many after the new Socialist government promised to avoid austerity.

In response to a grim assessment of public finances by the state auditor on Monday, Mr Ayrault said the economy would grow 0.3% this year, less than the 0.7% predicted by the previous conservative government.

He also confirmed a 75% tax band would be imposed on annual income above €1m while promising that low-income and middle-class workers would be spared tax rises.

For 2013, Mr Ayrault said growth would be higher — at 1.2% — but still well below the previously slated forecast of 1.75%.

“We knew the 2012 budget included under-assessments of spending and over-optimistic estimations of revenues,. The Court of Auditors has confirmed what we feared. The situation is serious.”

With France’s triple-A credit rating already cut by Standard & Poor’s in January, other rating agencies are watching the government closely to see if it is serious, despite its socialist ideals, about finding ways to hit its deficit targets.

Blaming the economy on the previous administration, Mr Ayrault said President François Hollande’s government would focus on getting France’s economic motors running again rather than resorting to sweeping austerity cuts.

Spelling out policy plans for the coming five years, he confirmed campaign pledges by Mr Hollande that more teachers and police would be hired, that 150,000 state-aided jobs would be created, and that competitive industries would be promoted.

The Court of Auditors said the government needs to find budget savings next year worth about €33bn in order to reach an EU budget deficit goal of 3% of gross domestic product.

That is on top of €6bn to €10bn in budget savings the court said was required this year for France to achieve a deficit of 4.4% of GDP.

Reuters