June 11 (Bloomberg) -- French President Francois Hollande’s cabinet approved 4 billion euros ($5.4 billion) in additional spending cuts to meet this year’s deficit target.
The cuts will include 1.6 billion euros in state spending and 1.1 billion euros of social benefits, with 1.3 billion euros in additional savings coming from lower investment outlays and reduced spending on unemployment and family benefits, the finance ministry said.
Hollande is balancing European Union demands to reduce the budget shortfall against record popularity and the need to revive an economy that has barely grown in two years. The cuts are the first step in Hollande’s “responsibility pact,” a plan to reduce spending by 50 billion euros over three years and use the savings to fund lower taxes for business.
“Let me reassure all businesses, we will vote and implement the responsibility pact,” Finance Minister Michel Sapin told journalists after the cabinet meeting. “The 50 billion euros in savings is essential and it will be obtained.”
The government said it expects growth of 1 percent his year and a deficit equivalent to 3.8 percent of gross domestic product. The growth should be spurred in coming months both by the tax cuts and by the European Central Bank’s decision last week to cut interest rates to a record low and provide 400 billion euros of liquidity for up to four years at current rates, Sapin said.
“The ECB’s decisions have been exceptional and extremely innovative,” Sapin said. “One percent growth can be achieved. The motors for that growth will be the pact and the decisions of the ECB.”
The supplementary budget also sets out 1.1 billion euros in income tax cuts for the nation’s lowest earners and includes previously announced reductions in payroll taxes and corporate taxes that will cost the government a total of 5.5 billion euros.
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