French parliament OKs new budget to fill coffers

July 20, 2012 - 1:37 PM
Cycling Tour de France

French president Francois Hollande greets spectators on the finish line of the 18th stage of the Tour de France cycling race over 222.5 kilometers (138.3 miles) with start in Blagnac and finish in Brive-la-Gaillarde, France, Friday July 20, 2012. (AP Photo/Laurent Rebours)

PARIS (AP) — France's lower house of parliament passed a revised 2012 budget on Friday to raise €7.2 billion ($8.8 billion) in new revenue by targeting corporations and the wealthy with new taxes.

The bill, passed in the early hours of Friday by the National Assembly where President Francois Hollande's Socialists hold a wide majority, reverses many of the measures passed under the former conservative president, Nicolas Sarkozy.

Among the Sarkozy measures that the budget scraps are tax breaks on overtime, a lower wealth tax and a reduction in the social charges that employers pay into the state benefit system — all conceived as part of the former president's push to shake up France's labor market and shatter a culture that has long had a squeamish relationship with wealth.

Debate over the budget in the parliament this week was fierce as members of Sarkozy's conservative party failed to resist a roll-back of much of what they had accomplished over the past five years. At one point, the session was even suspended so the deputies could cool down.

The extra cuts were necessary if Hollande's administration is going to stick to a strict schedule for reducing the deficit while growth continues to slip. The amendments assume the country will grow just 0.3 percent this year after Hollande criticized his political rivals for building the original 2012 budget around "exaggeratedly optimistic forecasts."

France's €2 trillion ($2.4 trillion) economy is the second largest after Germany's among the 17 countries that use the euro.

The Socialists have said they are committed to reducing the deficit to 4.5 percent of France's gross domestic product this year and 3 percent next. However, they disagreed with the measures Sarkozy had put in place to do it. Instead, they have said their policies will focus on restarting growth, while protecting an expansive state benefit system. They have said they want to "reindustrialize" the country by keeping and even luring manufacturing jobs here, but they have provided few details on how they might do that.

They have also promised to cut spending in order to stay on track, but Friday's budget was mostly aimed at adding a slew of new taxes on everything from dividends to petroleum stocks. One of the few cuts was to the president's own salary and those of his ministers — a symbolic gesture before asking the country to shoulder cuts.

Hollande has criticized austerity measures imposed around Europe, and France has largely avoided the massive cuts to public spending that have eaten into budgets from Britain to Italy. Some economists say they won't be able to put off trimming their massive state much longer. The country's debt to GDP ratio is 85.8 percent, among the highest in Europe, and has grown 25 percent since the global financial meltdown began in 2008.

France has occasionally seen its borrowing costs rise sharply over the past year over concerns that it is not doing enough to bring that debt under control. And the task is only going to get harder for Hollande: An audit of the state accounts earlier this month said that next year the government needs to make up a €33 billion shortfall — and that's assuming 1 percent growth in GDP. That's more conservative than the government's own most recent estimate, but not by any means guaranteed.

The amended budget goes to the Senate on Tuesday.