France's 2011 budget draft holds promises, risks

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France's 2011 budget draft holds promises, risks

11:30, October 10, 2010      

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France, eager to be in line with European safe threshold of budget gap, eyes low public spending next year to save enough to narrow the deficit and quicken growth. But the newly released state 2011 budget draft also brought critics doubting if the government plan was much too optimistic.

France wants to accelerate growth to 2 percent next year from an expected 1.5 percent in 2010. The gross domestic product (GDP) is set to expand 2.5 percent by 2014, according to its 2011 budget draft.

With an unprecedented move over five decades, the Europe's second power pledges to save 100 billion euros (139.2 billion U.S. dollars) during the next three years in a hope to cut budget deficit from a forecasted 7.7 percent this year to 6 percent in 2011 and 3 percent in 2013.

"It's a courageous and determined budget. We never did that, we never had the ambition and determination to reduce the deficit by two points," Christine Lagarde, French economy minister told Europe 1.

"There is no reason to not achieve a 2-percent growth in 2011," she added to the local radio channel.

According to 2011 budget draft, debts would represent 86.2 percent of the country's national wealth from 82.9 percent expected at the end of this year with the value of state deficit to reach 92 billion euros (128.1 billion U.S. dollars) next year from a forecasted record deficit of 152 billion euros (211.6 U.S. dollars) in 2010.

With the aim, the government is working hard to boost state receipts by expanding growth and freezing public spending over the coming three years. It targets to cut an average of 34,000 jobs in public services to alleviate the burden of budget gap.

"This is a historic budget. We are saying good-bye to years of public budget increases ... such a step has never been seen in 50 years,"commented Budget Minister Francois Baroin.

However, uncertainties are likely to shadow the plan as local economists and politicians fear that France will not achieve its commitments and reach the European financial standards, at least in an easy way.

The International Monetary Fund expected France growth to be at 1.4 percent this year and at 1.6 percent next year. The organization expected budget deficit to stand at 3.9 percent in 2013 above the government objective.

"Growth estimation is based on very optimistic assumptions, not only for 2011 but also for the coming two years. The government's plan will be efficacious for a certain time so I think officials will need to take other measures for the next budget to meet the announced targets," said an economist at PNB Paribas who refused to be named.

To Michel Sapin, Socialist Party's (PS') secretary for economic affairs, the outlook is clouded by an increase in taxes likely to affect further the large slice of the middle class in the country of 65 million population.

"The budget is nothing than the invoice of Sarkozyism," he said in a statement posted on the party website.

"The crisis explained one third of the public finance deficit in 2010, the rest is the result of an irresponsible policy which has widened the deficit with tax breaks for the wealthiest of our citizens, when our partners Europeans took advantage of growth to reduce them," he added.

The Sarkozy government decided to cut social tax loopholes to save 10 billion euros (13.9 billion U.S. dollars) in 2011 while it kept tax shield and solidarity tax on wealth, a measure protecting especially people of high incomes and rich real assets.

"The proposed budget will affect the middle class. We need a budget which cut deficit but doesn't hamper the growth recovery. Instead of that, we have a budget which increases taxes and reduces spending which would be necessary to maintain growth," Martine Aubry, the head of the left-wing PS told the private TV channel Canal+.

She criticized the new budget plan was austere to hit first the middle class but loose hands on the very rich.

The draft budget plan is scheduled to be presented to the National Assembly on Oct. 18.

Source: Xinhua

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