The French cabinet has approved the “toughest budget in 30 years.” It is seen as a major political test for the president Francois Hollande, who is resorting to a standard method of shoring up the budget: Taxing the rich and cutting spending.
France needs to make an estimated 30 billion euro in savings in its next fiscal year to reach Hollande’s ambitious target of reducing the country’s deficit from 4.5 per cent in 2012 to three per cent by 2013. The three percent figure is the EU’s mandated deficit ceiling for member-states.
Higher tax rates on business and wealthy individuals are expected to bring in revenues of 20 billion euro. Hollande outlined a plan to achieve the other 10 billion in needed savings by cutting public spending.
But experts believe the austerity measures risk further pressure on France’s stagnant economy, which has teetered on the brink of recession for the last three fiscal quarters. The country’s unemployment rate has also risen above ten percent – a 13-year high.
Francois Asselineau, veteran of several French Ministries over the last 20 years and head of the Popular Republican Union, said that Hollande may fall into the same trap as many of his predecessors.
“The past decades the governments have been cutting and cutting and cutting the state’s expenses to balance budgets, but in fact, the more they cut, the slower the economic growth,” Asselineau told RT. “It leads to recession, and an even bigger deficit, and consequently more cuts. This will be a catastrophic budget, I think.”
One of Hollande’s key promises during this year’s election was to tax France’s wealthiest at an unprecedented 75 percent for those earning more than 1 million euro a year.
Some experts warned that the higher rates may cause foreign capital to flee the country. And while France’s government claimed that austerity was not its top priority, there are no indications the sluggish economy is growing at a fast enough rate to make up for the budget shortfalls.
French publisher Alain Lefebvre believes the move is simply an empty political gesture.
“He did this to make his electorate calm down – to make an impression he’s doing something,” he told RT. “But this is all bluffing! It can't help. It's simply not enough, there’s not that many rich people in France.”
“The worst is that people who are now happy that the rich are being punished don’t understand, the government will start with rich but when [they] fail to succeed – and I’m 100 per cent certain they’ll fail – they’ll descend down the totem pole and tax the poor,” Lefebvre said.