Hollande Raises Tax on Rich, Companies to Cut French Deficit

Hollande-4261 (Photo credit: Francois Hollande)

Paris, sept.28.  trading stocks .-- President Francois Hollande’s first annual budget raised taxes on the rich and big companies and included a minimum of spending cuts to reduce the deficit.

The 2013 blueprint relies on 20 billion euros ($26 billion) in tax increases, including a levy of 75 percent on incomes over 1 million euros, and eliminating limits on the wealth tax. Hollande aims to reduce spending by 10 billion euros, bringing the deficit to 3 percent of output from 4.5 percent in 2012. The budget predicts growth of 0.8 percent.

“It’s true we’re asking for an effort of the richest, the top 10 percent and the top 1 percent in particular,” Prime Minister Jean-Marc Ayrault said today. “Big companies of the CAC 40 pay less than the small companies and sometimes don’t pay at all. So we’re asking them for an effort too.”

France has a financing requirement of 171.1 billion euros in 2013, down from 182.8 billion euros in 2012, Agence France Tresor said in a simultaneous release. The debt agency said bond issuance alone would total 170 billion euros next year, down from 178 billion euros this year.

The announcement triggered a gain in French 10-year bonds, with the yield falling three basis points to 2.18 percent. French borrowing costs have tumbled since Hollande took office in May. Still, with growth stalled and unemployment at a 13-year high, bond-market quiescence is partly hiding the scale of the challenge facing Europe’s second-largest economy, investors and economists say.

‘Big Test’

“This is the first big test of investor sentiment,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “For the past four months the bond markets have given the Socialist government a free pass.”

The yield on French 10-year debt dropped to a record-low of 2 percent on Aug. 3 and France also sold shorter-term notes at negative yields for the first time in July. Today’s budget predicts an average 10-year yield of 2.9 percent next year.

The premium demanded by investors to hold French 10-year debt rather than German bunds has fallen to about 75 basis points from a euro-era high of more than 200 basis points on Nov. 17, when then-President Nicolas Sarkozy was fighting concern about the viability of French banks.

Much of the improvement has rested on Hollande’s commitment -- repeated every week by himself or his ministers -- to reduce the budget shortfall to 3 percent of gross domestic product next year. ... Continue to read.

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• Hollande to find €30 bln in 2013 budget: reports (marketwatch.com)