Juppe's budget plans fail to impress sceptics

In an elaborate political exercise calculated to appeal simultaneously to voters, members of his parliamentary party, and the international currency markets, the French Prime Minister, Alain Juppe, yesterday presented details of France's draft budget for 1996, stressing his twin priorities of creating jobs and cutting the domestic budget deficit.

The package, which goes before parliament next month, envisages a reduction in the overall budget deficit from 322bn francs this year to 290bn next. It provides for increased spending on employment programmes and the judiciary, and for a net decrease in defence spending. Spending is planned to increase by only 1.8 per cent, compared with this year.

Most other programmes, including health, are required to keep spending at current levels, after allowance is made for France's modest - lower than 2 per cent - annual rate of inflation. There are tax increases on fuel and tobacco, reductions in tax breaks on savings and, in effect, an increase in the wealth tax. The social charges levied on employers are reduced by an average 13 per cent, but only in respect of low-paid employees.

While the provisions were less harsh than many predicted, partly because the government is suspending payments into certain state insurance schemes, Mr Juppe still seemed uncertain whether reducing unemployment or cutting the deficit was his priority: his presentation made jobs the priority; the budget document stresses the deficit. He appeared - just - to favour cutting the deficit: "The fight against unemployment and the fight against the deficit are not two alternative policies, but one and the same fight, because reducing the deficits allows interest rates to be relaxed, permitting growth and so creating jobs." But the French and international markets were left unconvinced, as were the more sceptical French MPs.

The politics were as important as the economics yesterday, as Mr Juppe was driven to Science City - one of President Mitterrand's futuristic "grand works'' on the edge of Paris - to present the budget in person to members of his parliamentary Gaullist-UDF coalition.

The Prime Minister offered three distinct messages. For French voters, the message was that President Jacques Chirac's reform programme was on course, and that his election promises - for more jobs and lower taxes - would be kept.

For Gaullist and UDF members of parliament, the message was that an overall strategy did exist and was being pursued.

Mr Juppe's final message was to the international markets: a pledge of rigour in public spending, coupled with an insistence that the outlook for the French economy was bright.