Confident Balladur drops tax cuts pledge

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The Independent Online
THE FRENCH government will today consider a 1995 budget which stresses austerity and deficit reduction, not the promised tax cuts. The budget will be presented to the cabinet by Nicolas Sarkozy, the Budget Minister and one of the chief lieutenants of Edouard Bal ladur, the Gaullist Prime Minister.

The absence of vote-catching tricks might appear a measure of Mr Balladur's confidence in the electorate's support for his style of government, ahead of presidential elections next May, for which he is the front-runner.

It is the second budget since Mr Balladur became Prime Minister nearly 18 months ago. Relying on growth of 3.1 per cent - unknown since 1989 - and holding the growth of public spending to below the projected 1.9 per cent inflation rate, it reflects a cautious conviction that his economic medicine is having an effect.

Mr Balladur promised when he took office not to make promises. This budget has little in the way of fancy footwork. It raises tobacco and petrol taxes and eliminates much of the fiscal advantage given to unleaded fuel. Households will be able to deduct 45,000 francs ( pounds 5,400) a year from income tax for domestic help, which will appeal mainly to the wealthy. Companies will receive a bonus for employing jobless people.

Unlike in Britain, the annual French budget, always set out in the autumn and due for implementation in the following January, has few secrets. Much of its content is announced in advance.

France's problems are similar to those of its neighbours, particularly where the deficit is concerned. But the drop in the 11.3 per cent unemployment rate is smaller than in other comparable European Union economies. In July, unemployment stood at 3,322,000, a drop of 0.3 per cent on the previous month. This was only the second drop since Mr Balladur came to power.

Mr Sarkozy's budget is seen as a stop-gap before the presidential election, which might come earlier than next May if President Francois Mitterrand's cancer forces him to stand down. With a conservative cabinet cohabiting with a Socialist President, the emphasis is on 'social' measures to help the unemployed. Although politicians of both left and right acknowledge the need for fiscal reform, no far- reaching measures can be expected just before an election.

Mr Balladur's reluctance to start down this road now is likely to come under attack from his conservative rivals, particularly Jacques Chirac, the Gaullist RPR party president, who is fighting against Mr Balladur's popularity to take the RPR nomination. But even he will have to moderate his challenge, if he does not want to give ammunition to the left.

Mr Balladur has had the advantage of governing as the world pulls out of recession. But France's problems were atypical. It slipped into recession later than other European countries - its economy was still growing in the last quarter of 1992 - and the first signs of a turn-around also came late.

A year ago, when France was forced to widen its exchange rate mechanism band in the European Monetary System from 2.35 to 15 per cent, the picture looked bleak. Now the franc is more stable.

Mr Sarkozy's aim to reduce the government deficit from 301bn francs to 275bn, or 3.6 per cent of gross domestic product, falls within Maastricht treaty criteria for EU monetary union. The message is that recovery is not strong enough to ease the burden on the citizen. Last spring, the government promised to reduce income tax in the next budget. In the event, only the low paid are scheduled to get any relief.