France confirms to cut spending for first time since 1958

PARIS (AFP) - French government spending will fall next year for the first time since 1958, Prime Minister Jean-Marc Ayrault said on Tuesday, as the country begins shifting the austerity effort away from tax hikes.

"Every year since 1958, since the beginning of the Fifth Republic, state spending has increased," Mr Ayrault said.

He spoke as he sent his ministries spending caps that will result in a cut of about 1.5 billion euros (S$2.5 billion) in central government spending in 2014 from the 2013 level.

"This is the first time that we will propose to Parliament such a reduction. It is a structural effort," he added.

The cut comes out to about 0.4 per cent of planned 2013 central government spending of about 395 billion euros.

So far, French efforts to cut its budget deficit have been heavily weighted towards tax hikes, but the country has long been advised to begin structural reforms to bring down unsustainable spending.

Of the 1.5 billion euros in cuts, 750 million will made from central government support to local governments and 750 million will be from ministerial budgets.

Mr Ayrault said that the cuts would not be across the board, and that some ministries would see their budgets increase, without specifying any details.

However, he indicated that the government's priorities remained job creation, education, housing, law and order, plus investments.

Last month, France won additional time from Brussels to bring its public deficit back within the European Union's ceiling of 3.0 per cent of output.

The overall public deficit includes spending by the central and local governments plus the social security system.

This year France should cut the public deficit to 3.9 per cent of gross domestic product, then 3.6 per cent in 2014 and 2.8 per cent in 2015.

This task is being complicated by the fact that France's economy is now widely forecast to remain in recession this year, and that according to EU forecasts the deficit will climb next year.

Opposition conservative lawmakers said that the recession this year is leading to lower tax revenues and calculate the deficit for the central government could come in some 20 billion euros more than planned.

Government officials acknowledged that tax receipts were coming in lower than had been forecast, but said the calculations did not take into account reduced spending.

Data from France's Insee statistical agency on Tuesday showed that the business climate in the manufacturing has continued to improve in June.

Insee's industrial economic climate index, based on survey of business managers, rose by one point from the previous month to 93 in June. The reading is still considerably below the long-term average of 100 points.