French PM Advocates Domestic Tax And Spending Cuts

by Ulrika Lomas, Tax-News.com, Brussels

07 April 2003

Speaking on French television last week, France's Prime Minister, Jean-Pierre Raffarin pledged that his government would cut tax taxes in 2004, despite remarks to the contrary made by Finance Minister Francis Mer last month.

The Prime Minister's comments came the day after the European Commission launched proceedings against France for persistently breaching the eurozone's fiscal debt threshold of 3% of GDP. The deficit reached 3.1% last year and the Commission estimates that it will climb to 3.7% of GDP this year.

Raffarin argued that the tax cuts are needed to stimulate France's economy, which is suffering from slow growth. However, he acknowledged the importance of the EU's stability and Growth pact, which sets the debt levels for eurozone countries, and said that the deficit would be reduced by cuts in public spending.

These public spending reductions will come in the form of controversial reforms to the state pension system. However, these have elicited mass protest in the form of strikes by transportation and air traffic workers. One of the main proposed changes is the convergence of public and private sector pension contributions in terms of the lifespan over which contributions are made. Currently French residents are obliged to pay into a public sector scheme for thirty seven and a half years in order to qualify for the state pension. In the private sector it is forty years.

Raffarin has said that the reforms, which also include a shake up of health insurance and state administration could be ready for parliamentary scrutiny "before the holidays".

The interview highlighted an apparent rift within the French government on economic and fiscal policy.

Last month in a radio interview the Finance Minister said the government will be freezing its tax cut programme "until economic growth returns".

However, Raffarin seemed to openly contradict Mer's words in his France 3 address this week, announcing that: "There is a prime minister, he is assuming the responsibility, and he is lowering taxes in 2004, I say this now one time for all. May those who say the opposite in the future please stay quiet."

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