World Economy

French Gov’t Plans Tax Cuts in New Budget

French Gov’t Plans Tax Cuts in New BudgetFrench Gov’t Plans Tax Cuts in New Budget

The French government presented its 2017 budget, including €1 billion ($1.1 billion) in tax cuts that are expected to benefit five million low and middle-income households.

The budget detailed at a cabinet meeting on Wednesday is based on expected economic growth of 1.5% both this year and next. The International Monetary Fund forecasts only 1.2% growth next year, AP reported.

The economy is expected to be a major concern for French voters ahead of the presidential election in April-May 2017. Unemployment has been hovering around 10% for years.

President Francois Hollande’s Socialist government has forecast that the deficit will fall to 2.7% of economic output from 3.3% this year, despite extra spending on defense and security.

The Haut Conseil des Finances Publiques, as the fiscal council is known, said it is skeptical.

The council, created in 2012 to assess the French government’s pledges to meet European budget rules, said risks of higher spending and weaker economic growth make it “improbable” that Paris can meet the budget target. France may even struggle to bring the deficit within European rules of 3% of economic output.

“Based on the information it has, the fiscal council considers bringing the nominal deficit under the 3% threshold in 2017 is uncertain,” the council said in a statement.

The gloomier assessment of France’s public finances will make it harder for Hollande to present himself as a fiscally responsible presidential candidate in 2017.

France’s incumbent president is yet to formally declare his candidacy, but with not much more than six months to next year’s vote, debate about future taxation and state spending is heating up.

Hollande’s Finance Minister Michel Sapin has said the proposal of the conservative opposition to slash taxes if they win the 2017 elections are “irresponsible” as it would derail deficit reduction put on track by the current government.

The conservatives—who are holding primaries in November—say the deficit will rise because of Hollande’s promises to finance training and jobs schemes for young people, recruit extra schoolteachers and increase security and military spending after the terror attacks in France in the past two years.

The fiscal council for its part emphasized risks to economic growth that would strip France of expected tax revenues in 2017.