French President Nicolas Sarkozy unveiled his first budget yesterday, aimed at pulling off a double whammy: encouraging growth with fiscal stimuli while containing the burgeoning budget gap.
The 2008 budget, which will be submitted to parliament for approval in the coming weeks, is focused on spurring economic growth through a $384 billion spending package that includes $12.6 billion of tax cuts legislated last month.
Budget Minister Eric Woerth, speaking after the plan was presented to the government, called it a "budget for investment and for the future".
"The economy is like a bicycle," said junior minister Eric Besson. "If you stop it, it falls over."
Sarkozy chose to delay cutting the debt and deficit in favor of campaign promises to introduce financial incentives for employers to allow overtime hours, tax cuts for home owners and a measure reducing the tax burden on high-income taxpayers.
The budget bill forecasts the deficit will fall to 2.3 percent of gross domestic product in 2008 from 2.4 percent this year. France's debt burden will drop 0.2 points to 64 percent of GDP.
Sarkozy has retreated from a commitment made by the previous government of Jacques Chirac to eliminate the budget gap by 2010. That won't happen until 2012 unless growth accelerates to 3 percent under the budget plans.
Expectations for growth are unchanged. The government predicts expansion between 2 percent and 2.5 percent for 2007 and 2008, admitting that the speed of growth in 2007 will be at the bottom end of the forecast.
The government has been accused of being optimistic in its hopes for 2007, as institutions including the International Monetary Fund and the European Commission cut their forecasts to reflect global economic instability stemming from credit-market turmoil in the United States, the euro's seemingly unstoppable rise against the dollar and record oil prices.
Faster economic growth in 2008 will boost tax receipts, helping to contain the deficit, the government argues.
It also promises to keep public spending in line with inflation.
Helping to control spending, the 2008 budget plans to reduce its wage bill by cutting 22,900 civil servants' jobs through attrition.
Overall, one in three retiring state workers will not be replaced when they retire.
While its hopes for the economy in 2007 have been dampened, the government said things will get better. It is aiming to equal or exceed a 2.5 percent clip after 2008 as reforms bear fruit and internal demand strengthens.
Source: China Daily/agencies
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