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Macron government to unveil belt-tightening first budget

French President Emmanuel Macron gestures as he delivers a speech on the European Union at the amphitheater of the Sorbonne University on September 26, 2017 in Paris. French President Emmanuel Macron will set out his vision for a rebooted European Union on September 26, targeting sceptical German politicians who made strong gains in weekend elections. / AFP PHOTO / POOL / ludovic MARIN

French President Emmanuel Macron’s government is set to unveil its first annual budget on Wednesday, balancing tricky priorities as it seeks to cut taxes while also slashing the deficit.

The young centrist president has pledged to find 16 billion euros ($20 billion) of savings next year, seeing a reduction in the deficit as key to boosting France’s credibility in Europe as he eyes a shake-up of the European Union.

France is one of the few remaining nations in the EU’s bad books for spending beyond the bloc’s deficit limit of three percent of gross domestic product. Macron wants the deficit to come in lower than that this year for the first time in a decade.

But the former investment banker is also eyeing tax cuts for companies and families worth a total 10 billion euros, leaving his government with less cash to make up the balance.

“Its ambitions are three-fold: considerable tax cuts, higher spending in certain sectors, and bringing down the deficit,” said Alain Trannoy, head of research at the School for Advanced Studies in the Social Sciences.

“That inevitably creates a tension.”

Prime Minister Edouard Philippe has warned there will be tough choices, saying last month that he was “not here to be nice”.

An interim budget for 2017 finalised in July included cuts to housing subsidies and defence spending which sparked a backlash from left-wingers in parliament and the head of the armed forces.

Social security is set to see a 5.5-billion-euro cut next year, according to a source close to budget preparations, while nearly 1,600 civil service jobs will be axed.

In better news for many families, some 80 percent will see their household tax reduced in a move the government hopes will increase the spending power of consumers.

– Open for business? –
Macron came to power in May promising to make France a more attractive destination for investment, starting his presidency by pushing through reforms to the country’s famously complex labour laws.

“France suffers from two ills: a lack of attractiveness and a lack of competitiveness,” said Geoffroy Roux de Bezieux, vice president of business lobby Medef.

The budget “essentially responds to the first problem”, he said.

Macron’s Socialist predecessor Francois Hollande had already pledged to bring down corporate tax from the current 33.3 percent to 28 percent by 2020.

The new president plans to cut this again to 25 percent by 2022 as he seeks to cast off France’s reputation for being a difficult place to do business.

Despite the tax cuts, the budgets of several ministries are set to go up in 2018 — notably that of defence, after the armed forces chief quit in a blazing row this summer over Macron’s plans to slash military spending.

People with diesel cars meanwhile face a 10 percent tax rise to 7.6 cents ($0.09) a litre as his government seeks a greener economy.

The environment was at the centre of a 57-billion-euro investment fund unveiled Monday which includes cash incentives for drivers to trade in heavily polluting cars.

France is forecast to post economic growth of 1.7 percent this year, but Macron has vowed to make a priority of lowering unemployment stuck at around 9.5 percent — about twice that of Britain or Germany.

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