Kuwait Times

Published Date: November 07, 2009

PARIS: French state overspending more than doubled in the first nine months of the year because of the economic crisis, officials said yesterday highlighting a budget dilemma common to many European countries. French tax revenues slumped with a downturn in economic activity, but spending rose sharply to shore up activity and contain the crisis, the finance ministry said.

The figures emerged the day after Prime Minister Francois Fillon warned of tough measures to come in a few months to bring overall public overspending within EU limits by 2014. He also said in remarks to the Le Monde newspaper that he would balance the books by 2016, to keep up with Germany which has put a legal fence around deficit financing.

The French central government deficit, one part of the overall deficit, stood at 125.8 billion euros (187 billion dollars) on September 30 from 56.6 billion euros at the end of September last year. The finance ministry said that the increase was a result of a drop in tax revenues arising from the economic crisis, together with extra expenditure of 29.9 billion euros to combat the downturn. The ministry said that the figures were in line with its forecast for the whole year of a government deficit of 141 bi
llion euros.

The government expects the overall public deficit covering the state, welfare and local authority budgets, to reach the unprecedented level of 8.2 percent of output this year. EU and eurozone rules for this key measure of public finances require that the figure must not exceed 3.0 percent of output and should move towards surplus in times of growth. However, several eurozone countries, some of which including France already had high deficits before the financial crisis, are now running deficits in excess o
f this limit.

Prime Minister Francois Fillon said on Thursday that at the beginning of next year he will present "a strategy for public finances" to reduce the deficit "to less than 3.0 percent by 2014 and to balance them "in parallel with Germany" by 2016 , "at the price of very big adjustments." However, he did not specify what these adjustments might entail. Many economists here say that the government will have difficulty in achieving this without big cuts in spending and without increasing taxes.

The right-wing government under President Nicolas Sarkozy has said it will not increase the overall burden of taxes and levies, and has based its program on structural reforms to increase efficiency throughout the economy and to tackle the perennial deficit problem. At the end of September, revenues for the central state budget amounted to 169.7 billion euros, down from 221.6 billion euros 12 months earlier, marking a fall of 23.4 percent.

The biggest drop occurred in revenues from taxes on businesses which fell by 72.6 percent to 10.6 billion euros. Total spending from the central state budget rose from 255.9 billion euros to 263.9 billion euros in the first nine months of the year. Special crisis spending totaled 9.6 billion euros at the end of September. Meanwhile, the customs service reported that a deficit on the balance of trade fell in September, owing mainly to a rise of exports.

France has developed a structural deficit in trade in recent years, and economists say that this key measure of economic performance exposes a lack of competitiveness and specialization by French companies, and particularly medium-sized businesses. The deficit in September was 1.755 billion euros from 2.173 billion euros in August. And Economy Minister Christine Lagarde noted that the trade deficit in the third quarter of the year had fallen by half from the level in the second quarter and was at the lowes
t level since the end of 2004. - AFP