France sticks to 2017 target despite spending overshoot

[PARIS] France signalled on Wednesday it was sticking to its commitment to bring its budget deficit below the EU-mandated limit of 3 per cent next year despite a planned 6.8 billion euro (S$10.18 billion) overshoot in public spending.

The overshoot comes from measures to boost security and teachers' pay.

France, the eurozone's second biggest economy, forecasts a public deficit of 3.3 per cent this year and 2.7 per cent in 2017, which would mean it would respect the EU limit for the first time since 2007.

However, the independent public audit office said last week there was a "high risk" France would miss its target in 2017 after a slew of new spending promises since January.

In projections published before parliament starts debating next year's budget bill, the government said state spending would exceed the target set out in the 2016-2019 plan notified to eurozone peers in April by 5.6 billion euros next year.

That includes a 2-billion euro boost to the security budget following the bloody attacks in and around Paris last year, and 3 billion euros in extra spending on education.

As announced earlier this year, local authorities will see their allowance cut by 2.8 billion euros next year, 1.2 billion euros less than initially pencilled in.

Nonetheless, the government expects to meet the 2.7 per cent target thanks to still unspecified savings in other departments and the fact a planned 5 billion euro tax credit to companies will only be booked in France's accounts in 2018.

French Finance Minister Michel Sapin has made repeated assurances that new spending measures will be offset by equivalent savings and that France will meet its deficit targets this year and next.

He has pointed to France's better-than-expected performance on the deficit front last year, when the shortfall narrowed to 3.6 per cent instead of the 3.8 per cent target.

REUTERS