President Francois Hollande puts his fiscal credibility on the line on Friday when he delivers France's toughest budget in 30 years in the face of a stagnant economy, record unemployment and plunging opinion poll ratings.
The Socialist leader's first full budget, to be presented to the cabinet at mid-morning, must secure 30 billion euros ($39 billion) in savings to keep promises on cutting the deficit made as part of euro zone efforts to end the debt crisis.
The belt-tightening, via tax rises for high earners and a freeze on spending, aims to cut the 2013 public deficit to 3 percent of annual economic output and bolster France's place as a euro zone power with Germany despite its record debt levels.
"We need to get France back on the rails," Finance Minister Pierre Moscovici told Europe 1 radio, stressing that low and middle-income households would be largely shielded from tax rises that would hit only around one taxpayer in 10.
"This budget is about struggle, about reconstruction," Prime Minister Jean-Marc Ayrault said late on Thursday, warning that France's bond yields - currently at record lows around 2 percent - would jump if it did not meet its 2013 deficit target.
Economists, however, are concerned that the budget goals look ambitious, especially based on a 2013 economic growth forecast of 0.8 percent that is widely seen as over-optimistic.
Moscovici said that if Europe's economic crisis steadied, French growth could exceed 0.8 percent next year.
But data on Friday confirmed zero growth was posted in the second quarter, marking nine months of stagnation, as a pickup in business investment and government spending was offset by a worsening trade balance and sluggish consumer expenditure.
Despite a rise in wages, consumers - traditionally the motor of France's growth - increased their savings to 16.4 percent of income from 16.0 percent a year earlier, amid concern about unemployment which is at a 10-year high and rising.
Read more: http://www.reuters.com/article/2012/09/28/us-france-budget-idUSBRE88R0AK20120928
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