France announces austerity budget to curb public deficits

The French government on Friday unveiled a tough, austerity budget, raising taxes and cutting spending in an effort to meet ambitious budget deficit targets. But Prime Minister Jean-Marc Ayrault continued to insist that "nine-out-of ten French people will not see their taxes rise" in 2013. The government has to find over 36 billion Euros (USD 47 billion) to meet budgetary requirements over the next 12 months and bring deficits down. France's public deficit now stands at 4.5 percent of Gross Domestic Product (GDP) and a deficit target of 3.0 percent has been set for 2013 in line with European Union rules. The budget announced Friday, and which will be submitted next month to parliament, creates new tax bands that would hit high-earners. A new 45 percent band has been created for earnings over 150,000 Euros per annum and another 75 percent top rate has been created for those earning over one million Euros, annually. These measures, along with earlier taxes and taxes on business, are expected to bring over 24 billion Euros into government coffers. The taxation measures will be accompanied by more than 12 billion Euros in government spending cuts in various areas. Speaking on television, Ayrault said the budget was "ambitious" but he said he was "confident" it could work and he called on French people to pull together as citizens. Ayrault resisted suggestions of increasing Value Added Tax (VAT), a broad sales tax, and also of increasing pay-roll taxes in 2013. While the budget makes sense on paper, it could have a dampening impact on France's ailing economy, which has had no growth for nine months and has narrowly escaped recession. The economy might only grow by 0.3 percent this year and forecasts for growth in 2013 are currently running at 0.8 percent, officially, a figure some say is already optimistic.