France unveiled a seven-billion-euro austerity package and plans to balance its budget by 2016 on Monday as President Nicolas Sarkozy seeks to protect its credit rating ahead of a tough election fight.
With France under threat of seeing credit agencies downgrade its prized triple-A rating, Prime Minister Francois Fillon announced budget cuts and tax hikes to keep France’s finances on track after slashing its 2012 growth forecast from 1.8% to 1.0%.
The new measures come as Sarkozy seeks to shore up his economic credentials with only six months to go before the presidential election, with polls showing him lagging badly behind Socialist challenger Francois Hollande.
The extra €7 billion in savings for 2012 come on top of August’s €12-billion ($16.4 billion) deficit-cutting package that raised taxes on the rich and closed tax loopholes
Fillon said France is seeking to save €100 billion overall in order to balance its budget by 2016. The new measures announced on Monday will bring an additional €17.4 billion in savings in 2012-2016, he said.
“We have only one goal — to protect the French people from the serious difficulties that many European countries are now facing,” Fillon told a press conference.
The government’s flagship reform of raising the retirement age from 60 to 62 will be brought forward from 2018 to 2017, he said.
The Value Added Tax (VAT) on many goods and services will be raised from 5.5% to 7.0%, except on essential goods such as food.
Corporate taxes will also be temporarily raised by 5.0% on corporations with annual turnovers of more than €250 million, Fillon said.
The state will meanwhile cut its costs by an additional €500 million next year, for a total reduction of €1.5 billion against 2011, he said.
In a symbolic gesture, Fillon also announced that the salaries of Sarkozy and his ministers would be frozen and called on business leaders to do the same, saying pay rises for some corporate bosses were “frankly indecent.”
France is trying to reduce its budget deficit from 5.7% of Gross Domestic Product this year to 4.5% in 2012. It is hoping to reach the European Union limit of 3.0% in 2013.