PARIS (MNI) – The French government aims to cut its deficit by E60
billion next year to E92 billion in order to reduce the overall public
deficit from 7.7% of GDP to 6.0%.

The multi-year budget program accompanying the bill presented in
Cabinet on Wednesday confirms the downward trajectory in the deficit to
4.6% in 2012 and 3.0% in 2013. The target for 2014 has been set at 2.0%
of GDP.

This unprecedented fiscal consolidation will not stop public debt
from rising from 82.9% of GDP this year to 86.2% next year and to 87.4%
in 2012. The debt ratio is seen declining to 86.8% in 2013 and to 85.3%
in 2014.

GDP growth is expected to accelerate from 1.5% or more this year to
2% next year and to 2.5% through 2014.

While next year’s deficit cut is the largest in half a century and
the steepest of reductions to come, it will be in some ways the least
painful.

First, the E35 billion borrowed this spring for long-term research
and investment will mechanically disappear from next year’s budget. (As
the sum is not included in the Maastricht deficit ratio, the decline in
the public deficit amounts to some E40 billion.)

The same is true of E16 billion in stimulus measures this year to
kick-start the recovery after the recession.

Operational outlays and subsidies will be trimmed by 5%, except for
pension payments and debt service charges. Total government spending
will dip by 0.2%. In the following years, outlays are to be frozen in
nominal terms, again excluding pensions and debt charges.

Including social security outlays, total public spending is seen
rising by an average of 0.6% per year in real terms from 2011 through
2014.

To reach the deficit target there will be a E10 billion increase in
tax revenues through a reduction in tax write-offs and fiscal incentives
for a wide range of economic and social objectives. As a result, the
total tax burden will rise from 41.9% of GDP to 42.9%. Business will
bear 60% of the increase and households the rest, the government
estimates.

Next year’s deficit target was calibrated to assure that government
borrowing on the market would decline, according to a ministry source
cited by the daily Le Figaro. The tentative medium- and long-term
borrowing program will be announced later in the day.

The budget assumes an inflation rate of 1.5% next year, rising to
1.75% the following years.

–Paris newsroom +331 4271 5540; Email: stephen@marketnews.com

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