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France unveils its toughest budget in years

September 28, 2012 |  5:32 am

Hollande
PARIS -- France's Socialist government announced the country's harshest budget in 30 years Friday, including $25.8 billion in new taxes.

The hardest hit will be major businesses and the rich, as President François Hollande stuck to his May election pledge to introduce a new "supertax" rate of 75% on those earning over $1.29 million a year.

However, France's public services escaped the major cuts that other Eurozone countries have enforced in the battle to rein in their sovereign debt.

The government needs to find around $47.7 billion to bring France's public deficit down to 3% of gross domestic product by next year, in line with European Union rules. The deficit is currently about 4.5%.

Two-thirds of the deficit cutting is to be made through new taxes and one-third in spending cuts. The government promised that after 2014 the split between taxes and spending cuts would be 50-50.

Of the $12.9 billion in new taxes on companies, most will be raised on large corporations through the removal of tax breaks and exemptions.  Another $12.9 billion of new taxes on households will affect only top earners, said French Prime Minister Jean-Marc Ayrault, who insisted 90% of taxpayers would be spared.

The "supertax" rate of 75%, a controversial populist measure, will apply for at least two years but affects only 2,000 to 3,000 people. However, a new 45% tax rate will be imposed on those earning over $194,000.

Pierre Moscovici, the finance minister, said it was an "unprecedented" budget, but insisted it was necessary to comply with European Union rules of reducing the public deficit to 3%.

Just four months into his five-year term in office, Hollande is under fire from all sides.

As well as grumbling from business leaders, unemployment numbers that topped the symbolic level of 3 million in August and tumbling popularity in the opinion polls, the president is facing revolt from traditional allies in unions and left-wing groups that are threatening strikes if the budget is too austere.

A demonstration is planned for Sunday against the EU's fiscal treaty, which imposes strict deficit limits.

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-- Kim Willsher

Photo: French President Francois Hollande addresses reporters at the United Nations on Wednesday. Credit: Eric Feferberg / AFP/Getty Images

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