FRANCE:France has unveiled a 2008 budget based on ambitious economic growth assumptions and hefty tax breaks but few spending cuts, shortly after the prime minister warned the country's finances were in a critical state.
France has run into trouble with its European partners for falling behind on promises to cut its deficit and debt but the budget is unlikely to ease such concerns.
President Nicolas Sarkozy has argued that the government needs extra time to push through reforms that will bring a "growth shock" to help the economy and improve government finances.
"It's not an austerity budget, it's a budget of action," said government spokesman Laurent Wauqiez yesterday.
Economists said the budget, Mr Sarkozy's first since his election victory in May, was neutral for economic growth and did little to reduce the deficit.
The government foresees a deficit of €41.7 billion, or 2.3 per cent, of gross domestic product, a modest improvement from the expected shortfall of 2.4 per cent.
However, meeting this forecast depends on growth of between 2.0 per cent and 2.5 per cent this year and next - a target critics say could be hard to achieve due to the strong euro and a worsening global economy outlook.
The plan is based on a euro rate of $1.37 next year and a Brent oil price of $73. The euro was trading at $1.4124 yesterday and Brent was trading at $78.14.
France has told the European Commission it will balance the budget in 2012, two years later than originally promised. A commission spokesman declined to comment on the budget but reiterated that all euro-zone countries should aim to balance their books by 2010 and that structural reforms and budgetary consolidation should go hand in hand.
The budget includes a package of €9 billion tax cuts to help homeowners and students and encourage overtime work. It also lifted spending on higher education and research by €1.8 billion.
Some savings will come from a 22,921 cut in the number of public sector workers next year, almost half of whom are in education.
The government also said it would raise €600 million from selling state-owned properties, and it plans increases in medical charges and incentives to discourage early retirement. The discussion over the budget has stirred divisions between Mr Sarkozy's office and prime minister François Fillon over how to convince the public of the need for potentially painful reform.
Mr Fillon has preferred shock tactics, warning of bankruptcy and saying public finances were in a "critical state", in an effort to win over workers and union leaders who have often derailed previous attempts at reform.
However, newspapers have reported that Mr Sarkozy was angered by Mr Fillon's approach and is eager to put a more positive spin on state finances before local elections next year.
Critics say the tax breaks mainly help the rich and will worsen public finances.
Socialist leader François Hollande said he expected the government to present a stringent budget after the municipal elections next year.