France PM announces gasoline tax cut

[August 23, 2012]  PARIS (AP) -- France is to cut gasoline taxes to ease the pressure of rising prices on French households, the prime minister announced Wednesday, as the Socialist-led government attempts to quell rising concerns about the country's sluggish economy.

Jean-Marc Ayrault sought to rebuild public confidence as Paris -- like many other European capitals -- faces the challenge of reinvigorating the economy despite tight state finances. France's economic picture has worsened over the summer after several leading French companies announced layoffs and several economists have warned that the government's growth forecasts are too rosy.

Unveiling the tax cut after President Francois Hollande's first Cabinet meeting following France's traditional August holiday break, Ayrault sought to convey can-do optimism amid concerns that the troubles with unemployment, state debt and weak growth that are affecting Spain, Italy and Greece could soon ensnare France. Full details of the cut are expected next week.

"This is a sign of determination, but of confidence," Ayrault said in a statement in the presidential palace courtyard, referring to a string of economic measures. "It's especially to tell the French people: `Even if we live in an uncertain world, even if Europe faces threats, even if the world scene is fragile, France has abilities -- we the French people have abilities -- and we are going to succeed.'"

France is the second-largest economy among the 17 countries that use the euro, with a gross domestic product of euro1.8 trillion ($2.24 trillion). However its economy has not grown in the past six months and it has a 10 percent unemployment rate.

Global markets and France's European partners will be watching next month as the government releases a budgetary plan to meet Hollande's pledge to bring the state deficit below 3 percent of gross domestic product next year, from a projected 4.5 percent this year. The Socialist government has yet to specify any spending cuts to bring this total down. Meanwhile, Hollande wants to bulk up the public sector -- such as by hiring 60,000 more teachers over his five-year term.

Ayrault said Wednesday that parliament would convene in a special session to take up legislation to create 150,000 jobs in vital industries and build 150,000 state housing units. The government also gave its final approval to a largely symbolic reduction in the salaries of both the president and prime minister by 30 percent -- an emblem of their message of social justice, that austerity isn't just about squeezing ordinary workers.

In the meantime, the government wants to help soften the squeeze of rising gas prices on consumers. Gasoline currently runs more than euro1.70 a liter in Paris (about $8 a gallon).

Speaking earlier on BFM-TV, Ayrault didn't provide details about the Socialist-led government's "unilateral" reduction in gasoline taxes, which he called small and temporary, or the potential impact on the budget.

"The government will do its job -- that's to say taking a step that will lower, notably on the tax level, the cost of fuel," he said. The measure "will allow us to ask (oil) producers and distributors to do their share too."

Finance Minister Pierre Moscovici said details of the gasoline tax cut would come next week, after he receives a government report on the matter and holds talks with consumer and industry groups.

The government also announced plans to encourage the French to save more in tax-free bank accounts set up under a special state program. Funds from those accounts would support the construction of new public housing or making current buildings more environmentally efficient -- measures that could support small and mid-size companies in the construction sector.

"This is a first phase ... it's a very strong signal to savers," Moscovici told reporters at his ministry. The injection of new funds for the building sector is part of reforms -- along with the creation of a state investment bank and new planned legislation on the banking sector -- "that will contribute to financing the French economy."

[Associated Press; By SYLVIE CORBET]

Jamey Keaten in Paris contributed to this report.

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