French budget needs more tightening, audit says

[July 02, 2012]  PARIS (AP) -- The French government must plug a hole of between euro6 billion and euro10 billion ($7.6 billion and $12.59 billion) in this year's budget to meet deficit reduction targets, the country's accounting watchdog said Monday.

The audit by the Cour des comptes also suggested that next year will be even tougher with a euro33 billion shortfall if the government sticks to its target of reducing the budget deficit to 3 percent of gross domestic product. And that's assuming 1 percent growth in 2013, far from guaranteed given the uncertainty of Europe's economic recovery.

The message from the auditors is unlikely to be welcomed by the government of President Francois Hollande, who rode to power in May on the back of an anti-austerity platform.

The government is aiming for a deficit of 4.4 percent of GDP this year and a balanced budget in 2017. But growth is expected to be only 0.4 percent in 2012, lower than earlier predicted, leaving the government little room to maneuver. The government is already planning tax hikes -- including a 75-percent income tax on those earning more than euro1 million a year, and new levies on banks and oil companies -- in a revised budget being presented this week.

The auditors warned that France's deficit, equal to 5.2 percent of GDP in 2011, remains above the average in the 17-country eurozone and threatens France's credibility in financial markets.

"If we put off the necessary treatment, we risks being confronted with an even stronger treatment, in addition to the risk imposed by our creditors and our partners," they said.

Hollande -- who declared "austerity can no longer be inevitable!" in his victory speech May 6 -- also promised to bring down France's high debt. Concerns about France's debt have flared up on occasion in the markets, since it is the eurozone's second-biggest economy.

The governing Socialists accuse the administration of former President Nicolas Sarkozy of underplaying France's economic weaknesses in the run-up to the election.

The auditors said efforts in 2011 to tighten the budget should be "pursued and amplified" and urged new "measures aimed at compensated lower receipts." Proposals included cutting jobs in France's large civil service, on both a national and local level, and ending tax breaks and loopholes.

Hollande has promised 60,000 new education jobs after many were cut under Sarkozy. But Hollande said he will make up for each new teaching job by cutting another government job elsewhere.

The audit comes days after Hollande helped push through a euro120 billion growth package at European Union talks in Brussels. Hollande insisted that an earlier European pact on budget-cutting across the eurozone was hurting too much and urged spending to boost growth.

[Associated Press; By THIBAULT LEROUX]

Angela Charlton in Paris contributed to this report.

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