France increases health tax in austerity package: Economy in a state of 'exceptional gravity', says Edouard Balladur, the Prime Minister

THE FRENCH Prime Minister, Edouard Balladur, yesterday unveiled emergency economic measures aimed at a difficult mix of raising revenue and boosting the economy.

Mr Balladur, who took over the government after the Gaullists and their centre-right allies won parliamentary elections six weeks ago, said the French economy was in a state of 'exceptional gravity'. He had delayed the announcement of his measures, originally expected last Wednesday, because of the suicide of Pierre Beregovoy, his Socialist predecessor, on 1 May.

The principal measures to raise revenue were an increase in the 'Generalised Social Contribution' (CSG), a controversial health service tax introduced by the Socialists under Michel Rocard two years ago, from 1.1 to 2.4 per cent of gross income, an extra 28 centimes (3.3p) on each litre of petrol and an increase of 16 centimes a litre on spirits.

The plan also provided for measures, yet to be defined, to reduce health service reimbursements. The health service operates as a state insurance in France with patients, except for the poor or elderly, paying for routine treatment and then claiming a repayment, currently around 80 per cent of the total.

To boost the economy, measures to invigorate housing construction included exoneration from inheritance taxes on the purchase of newly built homes. Reduction in interest rates to around 8 per cent since the new government came to power should also perk up a sluggish market. Mr Balladur announced tax measures to encourage small investors to move capital from money market savings accounts to share-based plans.

The housing incentives were part of a package to cut unemployment, under which Mr Balladur said the State would unblock Fr20bn ( pounds 2.4bn). This would include taking over some social charges for lower-paid unskilled workers from companies to encourage recruitment at the bottom of the scale. Mr Balladur said some 4.5 million people were 'without stable employment'. The official unemployment figure topped 3 million for the first time in March.

The classic austerity plan had few surprises. The Communist-led CGT union called a general strike for 27 May in protest. Given the dwindling influence of the CGT, this is unlikely to mean much unless other unions decide to join.

At a cabinet meeting before the announcement of the Balladur plan, Edmond Alphandery, the new Economy Minister, presented the first draft of a plan to give the Bank of France autonomy in keeping with the Maastricht treaty.

Over the past two or three months, the question has been whether the Bank of France would become 'independent' or 'autonomous' under its new statutes. The closer the conservatives came to power, the more 'autonomous' became the rule.

Under the reform - which may undergo important changes in parliament between now and the end of the month - the bank will be run by an administrative council that will include six experts, a representative of the government and a member elected by the staff of the bank. A separate nine-member council nominated by the government will decide on monetary policy.