French president François Hollande on Sunday announced €30 billion in new savings and tax increases to put Europe’s second largest economy on track to balance its budget in 2017.
“The government has not lost time,” insisted Hollande, who has come under criticism for reacting too slowly to the country’s worsening economic crisis, during an interview with TF1.
Despite a rise in industrial output in July, the French economy is expected to shrink .1 percent in the third quarter after posting zero growth in the previous three quarters. A BVA survey published in Le Parisien on Sunday found that 60 percent of voters is dissatisfied with the Socialist Party president’s performance so far.
Hollande, who defeated the incumbent Nicolas Sarkozy in May’s presidential election, is committed to reducing France’s shortfall from 4.5 percent of gross domestic product this year to 3 percent in 2013 and to balance his budget by 2017 to comply with the European Union’s fiscal rules.
In Sunday’s interview, the president insisted, “We will not spend one euro more in 2013 than what we did in 2012.” However, during the campaign, Hollande promised higher spending to hire tens of thousands more civil servants.
After they secured a parliamentary majority this summer, the Socialists repealed a planned sales tax increase and implemented a one time tax on wealth. Further tax increases are imminent. €10 billion should be raised from taxing “large companies,” said Hollande, and another €10 billion from “well off” households. He previously promised to raise taxes to 75 percent for high-income earners.
The right-wing opposition is critical. Jean-François Copé, who is a candidate to replace former president Sarkozy as head of the Union pour un mouvement populaire, said, “I was the budget minister for three years and I have retained one lesson: that is, to reduce the deficit, one starts with cutting public spending and not by raising taxes.”
Copé warned that business leaders will leave France. “There is no country in the world with a 75 percent tax,” he said. Indeed, Hollande’s planned increase would give France the highest income tax rate in the world.
When they were in government, the conservatives did raise taxes on liquors, tobacco and soft drinks to reduce a €96 billion shortfall in 2011, equivalent to 7.1 percent of GDP. There was also a “temporary” 5 percent corporate tax increase. France’s 34.4 percent corporate tax was already more than twice as high as Germany’s which is 15.8 percent.
Hollande on Sunday also vowed to curb unemployment. “I am setting up a calendar,” he said. “Two years to create a policy for work and competitiveness.” Some three million Frenchmen are jobless, a thirteen year high. During his campaign, Hollande pledged to subsidize the creation of 150,000 jobs for young people.
Since the beginning of the crisis, France’s debt-to-GDP ratio has risen by 30 percent to nearly 90 percent this year.