France: France introduces new austerity measures in the 2012 budget draft
September 1, 2011
On 24 August, French Prime Minister Francois Fillon announced a new set of austerity measures, included in the 2012 budget draft expected to be approved in late September. The deficit-reduction plan entails an additional freeze of government spending, a cap on tax breaks and an increase in income tax (including a one-off levy on incomes over EUR 500,000 per year), as well as higher levies on alcohol and tobacco. The estimated spending cuts amount to a total EUR 12 billion this year and next, which would bring this year's fiscal deficit to 5.7% of GDP and to 4.5% of GDP in 2012, before narrowing further to 3.0% in 2013. The move came amid lower growth prospects for this year, which could jeopardize the government's 2011 fiscal deficit target. Official forecasts now see economic growth at 1.75% this year and next, instead of the previous 2.0% and 2.25% respectively. The downward revision comes on the back of a poor Q2 GDP result and takes into account the developments in the U.S. economic situation and the impact of the European sovereign debt crisis.