French budget is heavy on austerity

Proposed plan raises taxes on wealthy to 75%

PARIS — President Francois Hollande, a Socialist who won election this year on a progrowth platform, presented a budget Friday that would produce the biggest cut in the public deficit in 30 years while raising the top rate for the wealthiest taxpayers to 75 percent.

The budget, to be presented to Parliament next month, is intended to bring France’s annual deficit to 3 percent of gross domestic product in 2013, down from 4.5 percent this year, in line with promises both to Brussels and to the markets.

It places heavy emphasis on austerity measures, raising new revenues through increased corporate and personal taxes and freezing total government spending.


Prime Minister Jean-Marc Ayrault called it ‘‘a combat budget for the recovery of the country.’’ But he insisted that the burden would fall mainly on corporations, already anxious about worsening French competitiveness, and on the relatively well off. He said that ‘‘90 percent of the French who pay income tax, with unchanged incomes, will not be taxed more.’’

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Hollande made a point during his campaign that policies of undiluted ‘‘austerity’’ should be modified by a push for economic growth. He demanded the renegotiation of a European Union agreement to enshrine debt limits into the law and to punish governments that break mandated limits on annual budget deficits and cumulative debt.

In the end, he had to be satisfied with another, parallel and more modest agreement on growth. And in this budget, Hollande and his finance minister, Pierre Moscovici, are making it clear that France will stick to its promises of debt reduction, even with lower growth estimates, in order to keep the trust of the market that buys French bonds.

They are doing so by raising taxes on corporations, the rich, and the middle class and by freezing public spending, though not cutting it.

Spain and Italy have been under pressure from the markets, being forced to pay interest rates approaching 6 percent, but France has been treated as an exception, paying rates that are closer to Germany’s 1 percent to 2 percent.


The Hollande government, though internally divided about how to do it, intends to keep it that way, since the lower rates have meant a significant budget savings.

Every 0.1 percent rise in French yields, Moscovici has said, costs France about $260 million annually, with a total debt projected to rise nonetheless to 91.3 percent of gross domestic product.