France to Cutback 8 billion euros in public spending

It will impose more pain on voters to protect its credit rating and rein in its deficit in a make-or-break gamble for President Nicolas Sarkozy six months from an election.Sarkozys centre-right government says extra savings are urgently needed to keep Frances finances from going off the rails, since it cut its growth forecast for next year to 1 percent from 1.75 percent last week. Prime Minister Francois Fillon is due to announce the cuts at 1100 GMT on Monday and they come on top of 12 billion euros in savings the government announced just three months ago.Like other European countries, France is struggling to keep its public finances under control and contain its debt without triggering a sharp drop in consumer spending, a cornerstone of the French economy, or sparking protests of the scale seen in other countries such as Greece.Ratings agencies have been hinting they could cut Frances prized top credit rating because of its slowing growth and its potential liability for the cost of bailouts in the European debt crisis.Without ever mentioning the word austerity, ministers from Sarkozys centre-right government spent the weekend defending the need for fiscal vigilance amid fears of mounting debts in Western states.The 2012 budget will be one of the most rigorous budgets that France has seen since 1945, said Fillon on Saturday, adding that Frances hour of truth has arrived. Ministers have given no concrete details on where the cuts would come from, but said they would be equitable.Finance Minister Francois Baroin told RTL radio on Sunday the measures would be balanced evenly between spending cuts and tax rises.Newspapers reported that the transition to Frances higher retirement age of 62 would now take place in 2016 or 2017, rather than 2018 and Le Figaro said on Monday automatic rises in welfare benefits could be hit too in a budget adjustment that might even hit 10 billion euros in all. Securing a rise in the retirement age to 62 from 60 was a key political victory last year -- but a highly unpopular move for Sarkozy, who said it was necessary to keep Frances ballooning pension deficit in check.Speeding it up would mean saving billions in coming years by delaying payments to retirees.Newspapers also reported the government could also raise Frances value added tax (VAT) rate in certain sectors from 5.5 percent to 7.0 percent, reversing an earlier policy to lower it.The government might also slap a corporate tax on businesses with annual revenues over 500 million euros, the paper said.Baroin denied speculation that French workers would be asked for an additional day of solidarity in which salaried workers work for free one day, their pay going to the state.France is trying to reduce its budget gap from 5.7 percent of GDP this year to 4.5 percent next year. It hopes to reach an EU-mandated limit of 3 percent of GDP by 2013.Preserving Frances coveted AAA credit rating through deficit reduction plans has been a key goal of Sarkozy, who in recent months has cast himself as a responsible steward amid the turmoil of the seemingly unending euro zone crisis. The cuts come at a politically sensitive moment for a leader whose popularity ratings are low six months from a presidential election in which he is widely expected to seek a second term.Socialist presidential challenger Francois Hollande said in an interview in Liberation newspaper that the orders from Sarkozy to find some 6-8 billion euros in savings might even be nsufficient and the newly reduced growth forecasts still overly optimistic.It mustnt be forgotten that 75 billion euros in tax revenues evaporated during Sarkozys five-year term through tax breaks for Frances largest companies and the best-off households, he said.