French 2014 budget to raise tax take, trim spending

PARIS Mon Apr 15, 2013 11:40am BST

French Finance Minister Pierre Moscovici attends the questions to the government session at the National Assembly in Paris April 9, 2013. REUTERS/Charles Platiau

French Finance Minister Pierre Moscovici attends the questions to the government session at the National Assembly in Paris April 9, 2013.

Credit: Reuters/Charles Platiau

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PARIS (Reuters) - French taxpayers face a heftier tax bill next year, the country's finance minister said on Monday, even though the focus of fiscal tightening is set to shift from raising extra revenue to trimming spending.

The additional tax burden of about 6 billion euros will show up in a revised multi-year budget plan the government will unveil on Wednesday, key to its efforts to win a one-year reprieve from its euro zone partners on its deficit target.

The Socialist government is fighting to retain fiscal credibility with the European Commission and euro zone partners such as Germany after weaker-than-expected growth forced it to abandon its 2013 deficit target earlier this year.

Companies and households are already under pressure from previous tax hikes and budget tightening, and Finance Minister Pierre Moscovici indicated there would be no relief next year.

The 2014 budget will raise the tax burden by about 0.2-0.3 percent of gross domestic product, or 6 billion euros (5.12 billion pounds), Moscovici said.

"In 2013 we had a proportion of two-thirds in taxes and one-third in savings (in public spending)," Moscovici said on France Inter radio. "In 2014 it will be the opposite, we will focus on spending cuts."

He said the only tax increase hitting households next year would be an already announced increase in sales tax (VAT) although some tax loopholes would also be closed.

France's budget plans had so far planned that the tax burden ratio would peak this year at 46.3 percent of economic output and remain the same in 2014.

CREDIBILITY AT STAKE

Although economic indicators have been going from bad to worse, the government is counting on growth of 0.1 percent this year, which it estimates would allow it to trim the deficit to 3.7 percent of GDP - still above the EU's 3 percent ceiling.

However, a Reuters poll of economists last week found that on average they expect the euro zone's second-biggest economy to contract 0.2 percent this year and see the deficit coming in at 3.8 percent.

Les Echos daily reported on Monday that the new budget plan envisages a public deficit of 2.9 percent of GDP in 2014 while public spending would reach a peak of 56.9 percent of GDP this year before slipping back to 56.4 percent next year.

The government's 2013 budget currently foresees public spending remaining steady this year at 56.3 percent of GDP before falling to 55.4 percent next year.

Moscovici said he "would not deny" the information published in Les Echos but did not go into details, except to say that public spending was nearing 57 percent of GDP.

He said on Sunday that the budget deficit would not be substantially below 3 percent of GDP.

The government is due to present its new 2014-17 financial programme to parliament next week before submitting it to the European Commission by the end of the month.

So far the government's lack of success in keeping its deficit targets on track has had little impact on the cost of financing France's debt, with benchmark 10-year government bond yields at 1.8 percent, close to record lows.

(Reporting by Ingrid Melander and Leigh Thomas; Editing by Catherine Evans)

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