February 8, 2017 / 7:50 AM / 5 months ago

French 2017 deficit reduction target 'hard to achieve' - state auditing body

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French President Francois Hollande delivers a speech during a visit at the High Court of Pontoise as part of the inauguration of the new "Streamlined Judicial Service for Citizens" (Service d'Accueil Unique du Justiciable - SAUJ) in Pontoise, near Paris, France, February 7, 2017.Kamil Zihnioglu/Pool

PARIS (Reuters) - The French government's public deficit reduction target for 2017 will be "very difficult" to achieve, as it underestimates a rise in public spending and sets overly optimistic tax income forecasts, France's auditing court said on Wednesday.

"For 2017, the government targets a reduction in the public deficit to 2.7 percent of GDP. This target will be very difficult to achieve," the court said in its annual report.

The state's payroll bill will rise by more than 3 percent this year, as much in one year as in the whole 2011-2016 period, the court added.

President Francois Hollande's Socialist government had to increase spending on security following deadly Islamist attacks in Paris and Nice in 2015 and 2016, and it has raised public sector workers' salaries as the presidential election looms.

The court also offered a less than rosy assessment of the government's past efforts to cut France's public deficit, the fourth-largest in the EU after Spain, Portugal and Britain.

"The unambitious 2016 deficit target of 3.3 percent should be met," the court said, noting that it was for the most part the result of rock-bottom borrowing costs due to the European Central Bank's bond-buying programme.

Over the 2012-2016 period, more than 40 percent of France's public deficit reduction was attributable to the drop in interest rates, the court said.

In a written response added to the court's report, the government said it did not share the court's view and had included in its budget plans the risks flagged by the court, including a 75 basis points increase in interest rates.

Reporting by Michel Rose; Editing by Richard Balmforth

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