PARIS-President Nicolas Sarkozy's government has bowed to economic reality, admitting its growth forecasts were overly rosy and announcing an €11 billion (US$16 billion) austerity package in a bid to ensure that France doesn't miss a vital pledge to cut its deficit.The government unveiled the package of spending cuts and tax increases two weeks after France came under fire by investors who feared the country's high debt and deficit levels, as well as its role bailing out weaker European partners like Greece.Prime Minister Francois Fillon said the austerity package was vital for France to keep its pledge on deficit reduction and maintain its triple A credit rating.France has not managed to balance its budget in three decades, and Sarkozy has staked his credibility on hitting a series of deficit targets over the next three years.Fillon blamed the international economic slowdown for France's failure to achieve the 2 per cent growth this year that Finance Minister Francois Baroin said only last week was still within reach.The country now expects to grow only 1.75 per cent this year, and the same amount in 2012. The government had built its 2012 budget, a critical election year for Sarkozy, on a target of 2.25 per cent growth.
Sarkozy's austerity package consists largely of closing tax loopholes and scraping deductions for the country's largest companies. But it also includes a €200 million tax hike on the country's wealthiest taxpayers via a 3 per cent "exceptional contribution" on incomes over €500,000.Fillon said the measures would ensure France achieves its pledge to European partners and to the holders of its €1.6 trillion in debt to cut its deficit to 5.7 per cent this year from 7.1 per cent in 2010. France is also committed to cutting its debt to at least 4.6 per cent in 2012 and 3 per cent in 2013, regardless of whether economic growth comes back.Fillon said France won't reach its economic growth targets this year or next and that he is announcing €11 billion ($15.9 billion) in new austerity measures. He said France would grow 1.75 per cent this year and the same in 2012. The government had forecast 2 per cent growth this year and 2.25 per cent next year, targets considered overly optimistic by most economists.Fillon told journalists the measures were to make sure the government met its pledge to cut its deficit. (AP)
