August 20, 2014 / 8:44 AM / 4 years ago

France's Hollande says to speed up reforms, ease tax on poorest

PARIS (Reuters) - French President Francois Hollande said on Wednesday he would accelerate reforms while at the same time giving tax breaks to poorer households as he tries to win back confidence from voters who do not trust he can lift the country out of stagnation.

French President Francois Hollande (L) and French Prime Minister Manuel Valls arrive at the Fort de Bregancon for a working lunch in Bormes-les-Mimosas, southeastern France, August 15, 2014. REUTERS/Bertrand Langlois/Pool

The most unpopular French president in modern history has come under growing fire from both the opposition and some ruling Socialist party lawmakers over his economic policy after his government abandoned growth and fiscal targets last week.

As he prepares for tough negotiations on the 2015 budget both at home and with France’s EU partners, Hollande sought in an interview with Le Monde to explain that he would work on both fronts: reform France and help low-income households.

“It is not because the situation is difficult in France and in Europe that we should give up. On the contrary, we need to go faster and further,” he said in the interview.

“I want to accelerate reforms to boost growth as fast as possible,” he said, starting with home construction. He gave no concrete details beyond saying the plan would tackle taxation, regulatory and financing issues for construction.

Housing has become a major headache for the government, with housing starts in France down to a 16-year low - a serious drag on the economy. Property developers blame the problem partly on regulations that took effect this year to set rent limits in cities with more than 50,000 people.

Hollande also confirmed that the government would reform welfare benefits and income tax rules to give poorer households a tax break on a similar scale to one struck down by the constitutional court earlier this month.

The initial plan had been to bring lower-paid workers 2.5 billion euros (2.00 billion pounds) in payroll tax cuts next year. The government had also promised to extend a rebate of just over 1 billion euros in income tax paid by poorer households.

An Ifop opinion poll showed over the weekend that 85 percent of voters do not think the government can cut record-high unemployment and only 16 percent believe it can boost growth.


While Hollande insisted in the interview on steps to help low-income households, he also said the government would not change its supply-side economic policy, which is based on much bigger tax cuts for businesses and ignored calls from rebel Socialist lawmakers who have asked him to change course.

Taking a more pro-business turn to seek to lift the country out of stagnation, the government pledged earlier this year some 40 billion euros in tax cuts for businesses over the next few years and 50 billion euros in public spending cuts.

The Socialist president also confirmed the government would come up in September with a plan to open up closed professions such as pharmacists and notaries. This is a long-standing demand from Brussels and one the government hopes will help convince its EU peers it is carrying out structural reforms - a key condition to win more reprieve on EU fiscal targets.

That bill will also “adapt” a general ban on Sunday shop openings, Hollande said, another effort to cut red tape and a move long demanded by business leaders.

Finance Minister Michel Sapin said last week that the lack of economic growth and weaker-than-expected inflation meant the public deficit would come in higher than expected this year and hinted Paris would also fail to bring its deficit under the EU’s 3-percent-of-GDP cap next year.

France needs to submit its draft budget plan to the European Commission by mid-October for review. The EU executive can send it back for rewriting if it is not satisfied.

Paris also potentially risks sanctions from its EU peers if it misses the bloc’s deficit target again next year. They could, though, give France yet another reprieve like the one they gave the country in 2013.

Hollande reiterated French calls for the European Union and its central bank to do more to boost growth through investments and weaken the euro, which he said was still overvalued.

Reporting by Ingrid Melander; Editing by Andrew Callus and Toby Chopra

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