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EDITIONS
Wednesday, 10 July, 2002, 16:55 GMT 17:55 UK
French budget risks EU wrath
Jean-Pierre Raffarin, new French prime minister
Mr Raffarin has pledged to cut taxes
The French government has increased its target budget deficit by about 50% and is in danger of breaching limits set by the European Union.

It plans to set itself a budget deficit of 46bn euros (29.4bn; $45.7bn) in 2002, officials have said.


Our predecessors did not take advantage of the period of good growth to reform

Budget Minister Alain Lambert
The new 2002 deficit figure is expected to amount to 2.6% of France's gross domestic product, as long as surpluses in local authority and other finances come through.

This compares to the 1.8-1.9% forecast by the previous Socialist government.

'Costly employment policy'

The new right-of-centre government has accused its predecessor of leaving state finances in disarray.

"The French people now know that the (total public) deficit could reach 2.6% percent of GDP... our predecessors did not take advantage of the period of good growth to reform," said Budget Minister Alain Lambert.

"Instead they implemented a costly employment policy on credit. The country cannot afford such extravagance," he said in an article in the daily Le Monde.

However, the government has said that it will stay within the 3% cap imposed by the EU's Stability and Growth Pact.

Breaching that limit can incur fines.

Too much spending

The new deficit figure represents an increase of 15.5bn euros from the deficit planned a year ago by the former Socialist administration.

The budget deficit is the shortfall between the government's income, such as tax revenues, and its level of spending.

A lower level of tax receipts is responsible for almost 10bn euros of the increase in the projected deficit.

Extra spending has also accounted for another 4.6bn euros of the extra deficit.

Tax cuts

The new government, headed by Jean-Pierre Raffarin, also pledged to cut taxes after it won parliamentary elections - and the new budget includes a provision for a 5% cut in income tax.

The 2002 revised budget will be debated in parliament next week and is based on an economic growth forecast of 1.4-1.5%.

The new government is banking on further growth to counter any tax cuts it makes, and hopes to get the deficit close to zero by 2004.

See also:

27 Jun 02 | Business
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17 Jun 02 | Business
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