New French PM sets out agenda

French Prime Minister Jean-Marc Ayrault outlines his new government's agenda on Tuesday, hamstrung by promises to voters and EU authorities amid an audit warning of 43-billion-euro budget hole. In Europe, the eurozone crisis still burns and at home his finance minister has just warned that economic growth will be lower than forecast. The projected two-year shortfall of up to 43 billion euros is what has to be covered with spending cuts and tax increases to reduce the overall public deficit by stages to targets for this year and next. Ayrault's speech will be closely watched by voters, businesses and the right-wing opposition in France but also by financial markets worldwide as France along with Germany is a key player in resolving the eurozone debt crisis. The Socialist government under President Francois Hollande, whose poll mantra had been growth over belt-tightening, may be forced to review pledges to voters to create jobs, spur growth and reduce the public deficit. The state audit office, which warned that the budget must be adjusted by up to 10 billion euros this year and by 33 billion euros ($41.7 billion) next year, raised prospects that sweeping cuts -- and deeper than expected -- are now inevitable. The Les Echos financial daily's top headline on Tuesday was "France condemned to unprecedented austerity." The newspaper foresaw that salary freezes, cuts in public sector current spending, and a review of grand infrastructure projects were in the pipeline. It said that the construction of high-speed rail networks could be cut back to help cut the public deficit. The left-leaning Liberation newspaper underscored the government's "historic responsibility to take charge of France's financial recovery." The prime minister "has his back to the wall," Le Parisien daily added. France is set to revise growth forecasts for this year to 0.4 percent from 0.5 percent and for next year to 1.3 percent from 1.7 percent. During his election campaign, Hollande pledged to reduce public debt, the accumulation of past deficits, based on the earlier, more optimistic, forecasts. France has run budget deficits since the 1970s. But already the right-wing opposition is attacking the Ayrault government for reintroducing the austerity approach which the Socialists had strongly attacked when they were on the opposition benches. Valerie Pecress, the budget minister in the centre-right government of Hollande's predecessor Nicolas Sarkozy, said ahead of the speech that the "austerity of the left is hypocritical." She said in a radio interview: "Who will believe that the budget can be balanced by doubling the annual direct wealth tax and by lowering the salaries of ministers?" She said that "the austerity of the left will be far more brutal than that of the right," and added: "The truth is that all French people will have to bear the burden." France has promised its Euopean Union partners to reduce the public deficit from 5.2 percent of output in 2011 to 4.5 percent at the end of this year. Prime Minister Ayrault has already ordered ministries to slash spending by seven percent next year and said some public sector jobs will be cut. After his hour-long speech before the National Assembly, the proposals will be put to vote, a mere formality as the government has a comfortable majority in the house. The government will then announce budget adjustments on Wednesday. Budget Minister Jerome Cahuzac, contradicting a suggestion in the audit report, has said there would be no increase in value-added sales tax (VAT) in the revised budget for 2012. He added: "As the president and prime minister have said, next year there will be no increase in state spending even with inflation factored in." Hollande had pledged to create new jobs, impose a 75-percent tax on income of more than one million euros and has already committed the government to raising the minimum wage by 2.0 percent. The audit office said that for 2013, on the basis of a commitment of reducing the deficit to the EU ceiling of 3.0 percent of gross domestic product, widely-based taxes such as VAT sales tax or the complementary social CSG tax, would have to be raised, at least temporarily. "I am waiting for the mea culpa," or an admission of error, said Jean-Francois Cope, a leader of Sarkozy's UMP party. "Despite the crisis, we had the courage to undertake difficult reforms," he added. The auditors found that surprises from unexpected spending on commitments made by the last centre-right government were limited, totalling 1.2-2.0 billion euros.