CREDIT RATING:NICOLAS SARKOZY'S government is to unveil its second austerity budget in barely two months as the French president attempts to protect his country's triple A credit rating while not doing irreparable harm to his re-election hopes.
After days of gruelling talks at the G20 meeting in Cannes, Mr Sarkozy spent an equally taxing weekend with his ministers in Paris as they sought ways to cut €6 billion-€8 billion more from 2012 spending.
Alain Juppé, France’s foreign minister, said the austerity plan would be announced today by François Fillon, prime minister, after a cabinet meeting. Mr Fillon said at the weekend it would be “one of the most rigorous budgets since 1945”.
The rapid redrawing of the austerity plan became necessary after Mr Sarkozy lowered estimates for growth next year from 1.75 per cent to just 1 per cent. The fresh cuts will come on top of €11 billion of savings announced in Mr Fillon’s first austerity budget at the end of August.
In his weekend speech the premier made pointed reference to the word “bankruptcy”, saying he was doing this to “awaken our consciousness” about the urgent need to end the country’s reliance on deficits. “France should face the truth,” he added.
Mr Juppé declined in a radio interview to disclose details of the plan, which he said were still being decided. However, he conceded the “world has changed” when pressed on whether restaurants and cafes should expect an increase in their reduced 5.5 per cent rate of value added tax.
There was speculation that the lower VAT rate could be raised in several sectors to at least 7 per cent.
French companies with yearly sales of more than €500 million could also be targeted for a special tax. Business bore the brunt of many of the previous austerity measures.
However, the government is acutely aware that mishandled tax rises could inflict more damage on consumer confidence and already meagre growth.
To placate credit rating agencies, Mr Sarkozy wants to cut France’s public deficit to 4.5 per cent of gross domestic product in 2012 from 5.7 per cent this year. – (Copyright The Financial Times Limited 2011)