French poised to unveil a tax-heavy budget

Sep 28, 2012, 7:36 AM EDT
France's President Francois Hollande speaks during a news conference after his speech at the 67th United Nations General Assembly at the U.N. headquarters in New York September 25, 2012.

PARIS (AP) — The French government aims to tackle the country's deficit and jumpstart its economy when it unveils its budget for next year on Friday.

"This is a serious budget, it's a leftist budget and it's fighting budget," Finance Minister Pierre Moscovici told French radio station Europe-1 Friday morning, before the legislation was presented to the Cabinet.

Governments across Europe have had to tread a fine line between cutting the debts that dragged them into the current financial crisis and fighting to keep their economies out of recession. The French economy, the second largest among the 17 countries that use the euro, has not grown for three straight quarters, the national statistics agency confirmed Friday.

Economists warn, however, that things could get much worse in France if it doesn't get serious about slashing state spending and reforming stringent labor laws.

Moscovici said the budget would be a "combat" on three fronts: against the financial crisis, against inequality and against the debt.

President Francois Hollande, who took office in May, promised that he would slash the country's deficit to 3 percent next year — a limit required by European rules. To do that, the government must find 30 billion. One-third of that is expected to come in spending cuts, with the rest in new or higher taxes on the wealthy and big companies, including a 75 percent tax on incomes over 1 million.

The budget is built around an expectation of 0.8 percent growth for next year. However, if growth misses the projections, more cuts could be needed later.

Moscovici conceded that most economists predict the French economy will grow just 0.5 percent, but said that if the European debt crisis stabilizes, France would meet its targets.