A painful headache for Hollande on budget plans

AS we head into September we should begin to see how the French government intends to make savings of around €33 billion to hit its 2013 budget targets.

François Hollande, and his prime minister Jean-Marc Ayrault, have said they intend to get the government deficit down to 3% of GDP by the end of next year.

All their calculations are based upon growth within the French economy of 1.2%, however with rising prices and increasing unemployment, many believe the country will struggle to hit 0.5% growth.

If this is the case then savings of €45 billion will have to be found to hit the 3% target, so it is clear that some very difficult decisions will have to be made.

As a foretaste of what is ahead, the culture minister, Aurélie Filippetti, said that many of the larger projects her ministry oversees may have to be choked back.

One of these is likely to be the Museum of the History of France, a project instigated by Nicolas Sarkozy, and whilst there might be some political point scoring in the decision it is reflective of the cost cutting set to take place.

Aurélie Filippetti refused to say if civil service posts would be cut, but one area that might see change is the television licence.

It might be extended to cover other services, but also may be applied at a lesser rate to second homes and so you could see an additional cost on your taxe d'habitation.

Overall there is likely to be more emphasis on closing tax loopholes, or niche fiscale, while an increase in TVA has not been ruled out, but it would be seen by many as a step too far especially with the spending power of the French public falling.

Whether François Hollande will have any room for manoeuvre will depend very much on how the euro crisis turns out, but now three years on, and with Eurozone business confidence at lowest since August 2009, the opportunity to gain from growth seems limited.

But to undertake drastic cuts would go completely against what François Hollande stood for in his presidential campaign, leaving him open to attack from the opposition but also some within his own party and ultimately the electorate.