French President Francois Hollande unveiled his first budget on Friday that heavily tightened spending and raised taxes on the rich to bring the government deficit sharply down by next year.
The government plans to cut its 2013 budget deficit to 3 percent of gross domestic product from 4.5 percent in 2012. The budget forecasts economic growth of just 0.8 percent.
This is the toughest single belt-tightening France has seen in decades. Economists warn such severe tightening may push the economy, which has stagnated in the recent three quarters, into recession.
The spending reduction is set to save EUR 10 billion and EUR 20 billion is expected to come from tax increases on both households and companies.
The government also reduced the exemption on interest payments of companies and announced a reduction on existing tax break on capital gains from share sales.
Further, the government levied a 75 percent tax on earnings above EUR 1 million and a new 45 percent marginal income tax for revenues over EUR 150,000 a year.
However, 90 percent of citizens will not see an increase in income tax, Prime Minister Jean-Marc Ayrault said at a press conference. He said the deficit target is 'realistic'.
Elsewhere, Agence France Tresor said it will reduce the bond issuance for next year to EUR 170 billion from EUR 178 billion this year. The total financing requirement for the State will amount to EUR 171.1 billion.
Data released by the statistical office Insee, earlier in the day, showed that that public debt reached 91 percent of GDP from 89.3 percent in the first quarter.
by RTT Staff Writer
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