France's Socialists take aim with new budget
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France's Socialists take aim with new budget

Paris : France | Jul 27, 2012 at 5:18 AM PDT
Source: Associated Press
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An amended budget for 2012 being pushed through the French Parliament could provide an insight into President Francois Hollande's new Socialist administration: The rich and large companies will be taxed before spending cuts are considered and many of the big measures of the previous administration aimed at shaking up the country's labor market look set to be swept away. Business leaders are worried that the first major act as France's new leader will set the tone for the rest of his time in office. Debate over the budget in the parliament last week was fierce as members of previous President Nicolas Sarkozy's conservative party fought in vain against a roll-back of much of what they had accomplished over the past five years. At one point, the session was even suspended so the deputies could cool down. The Senate is scheduled to vote on the budget on Friday; both houses are expected to approve a final version next week. The new government claims the budget measures show that it is serious about reducing the country's deficit. It has already pledged to balance the country's budget by 2017. However, it did not back up the tax hikes with any significant cuts in government spending. Companies say that the new taxes send out the wrong message: that France is closed for business...As growth has slowed, France's debt-to-GDP ratio has exploded, rising 30 percent since the crisis began to 89.2 percent this year. So far, Hollande's push to cut the deficit appears to have been received well...Last week, a long-term debt auction also saw borrowing costs fall. But analysts and business leaders say that chipping away at France's deficit by raising taxes is not a long-term plan. Creating incentives for businesses is going to have to be part of any strategy to restart growth...Guillaume de Fondaumiere, the co-CEO of video game company Quantic Dream which has 170 employees, said he and his fellow businessmen were growing weary of being France's boogeymen. "We're not expecting medals but a minimum of consideration and help that would allow us to give our best," said de Fondaumiere. One official from a CAC-40-listed company said the budget sent a message that the government doesn't like business and it doesn't like rich people. He would only speak candidly about the budget on condition of anonymity. The French government hasn't been shy about saying that the budget bill is targeting the rich. This is an administration led by Hollande, who once famously said he did not like the rich. Finance Minister Pierre Moscovici defended it in parliament as a law that "again puts justice at the heart of our tax system."...In the past 20 years, the annual unemployment figure has never been less than 7.4 percent, according to national statistics. It has been over 10 percent, where it stands now, for most of the 1990s. What was missing from the budget measures was any sign of real spending cuts. Such measures will have to wait until Hollande's administration writes the budget for 2013 this fall. "This is a strong message to everyone ... that the government has not understood the urgency of reducing public expenditure," said Lesueur. France has been spending more than it takes in revenue for a long time and the crisis over too much debt among the other members of the 17-country eurozone threatens to bring the problem to a head. The country's borrowing rates have occasionally spiked sharply since last summer on fears that the country is not cutting its spending or reforming its labor market to encourage more growth. "When the storm comes, I'm not sure if we'll have the means to react," Lesueur said...Hollande has even created a Ministry for Industrial Recovery. Its first act will be to set about renegotiating a cost-cutting plan that would eliminate 8,000 jobs at carmaker Peugeot Citroen...A grand plan to remake France as a center green vehicle production was unveiled on Wednesday as part of an effort to save the country's auto industry. This highlights France's split personality: On the one hand, many companies will complain about a government threat to prevent profitable enterprises from laying off workers; on the other hand, they look to the state to prop them up in tough times. "It's working less and less well," said Lesueur. "However, since we have made the French so accustomed to public spending, they're drugged." --- Follow Sarah DiLorenzo at http://twitter.com/sdilorenzo .

 
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