June 26, 2012 / 10:19 AM / 6 years ago

France to shelve 1 billion euros in spending this year

PARIS (Reuters) - The French government will shelve 1 billion euros of planned spending this year, on top of a three-year spending freeze that kicks in 2013, Budget Minister Jerome Cahuzac said on Tuesday.

President Francois Hollande’s five-week-old Socialist government is battling to bring its public deficit down to within a target of 4.5 percent of gross domestic product by the end of 2012, mainly through planned tax increases.

Prime Minister Jean-Marc Ayrault told cabinet ministers on Monday that overall spending at ministries and regional government departments would be frozen from 2013 for three years, excluding debt costs and pensions.

Cahuzac said this year’s freeze would affect all departments except the education, justice and interior ministries. “A billion euros which should have been spent between now and the end of the year will be frozen,” he told BFM television.

Facing huge budget constraints at home, Hollande is leading a push to refocus Europe away from austerity towards measures to boost growth, including the use of unused EU structural funds for investment and joint European infrastructure project bonds.

French state spending for 2012 is expected to total around 360 billion euros ($450 billion), but the government is due to announce revisions to its budget bill next Wednesday to reflect flagging growth that is hitting revenues.

The adjustments will follow a national audit office report on public finances expected to show the country will be hard pushed as things stand to meet a 2013 deficit goal of 3 percent of GDP. [nL5E8HP17I]

Hollande aims to compensate for the 60,000 public sector jobs he has promised to create over five years by not replacing all workers who retire. He has also said a rise in the minimum wage, due to be announced later on Tuesday, will be modest.

Among the tax increases being prepared, Cahuzac said a new 3 percent tax on company dividends would be put in place in the months ahead and a tax-free threshold for money inherited or gifted from relatives would be lowered.

He said the government would also scrap a sales tax rise due to come into effect in October and a tax shield for the wealthy, which he said cost the state around 800 million euros in lost revenues in 2011.

Daily Le Parisien reported that the tax shield had cost France around 3 billion euros since former conservative President Nicolas Sarkozy created it in 2007.

($1 = 0.8013 euros)

Reporting by Jean-Baptiste Vey; Editing by John Stonestreet

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