Crisis budgets: France hikes taxes, Spain cuts spending

French President Francois Hollande's Socialist government unveiled sharp tax hikes on business and the rich on Friday in a 2013 budget aimed at showing France has the fiscal rigour to remain at the core of the euro zone.

French President Francois Hollande's Socialist government unveiled sharp tax hikes on business and the rich on Friday in a 2013 budget aimed at showing France has the fiscal rigour to remain at the core of the euro zone.

HT Image

Meanwhile, Spain also announced a crisis budget for 2013 based mostly on spending cuts late on Thursday, in what many see as an effort to pre-empt the likely conditions of an international bailout.

The French package will recoup €30 billion ($39 billion) for the public purse with a goal of narrowing the deficit to 3.0% of national output next year from 4.5% - France's toughest single belt-tightening in 30 years.

The government said the budget was the first in a series of steps to bring its deficit down to 0.3% of GDP by 2017. Of the €30 billion of savings, €20 billion will come from tax increases on households and firms, with tax increases already approved this year to contribute €4 billion to revenues in 2013. The freeze on spending will contribute €10 billion.

Spanish ministry budgets, meanwhile, were slashed by 8.9% for next year and public sector wages frozen for a third year as Prime Minister Mariano Rajoy battles to trim one of the euro zone's biggest deficits.

The government sees budget savings of €13 billion in 2013, with spending down 7.3% and income rising 4% thanks to a 15% leap in value-added tax take.