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French PM vows more tax cuts, pension reform

By Paul Carrel

Reuters, April 3, 2003

Prime Minister Jean-Pierre Raffarin vowed on Thursday to cut taxes further despite France's burgeoning public deficit, and pledged to see through a controversial reform of the creaking state pension system.

In a wide-ranging interview on French television, Raffarin said his centre-right government would push on with the shake-up of the pension system despite a nationwide strike over the reform earlier in the day that crippled rail and air traffic.

The government would put a lid on public spending to help finance the tax cuts, which were needed to stimulate the economy and create jobs, Raffarin said.

"We will cut taxes in 2004," Raffarin said in the interview on France 3 television. "We will do it because it needs to be done in the interests of our country."

Finance Minister Francis Mer said only last month that President Jacques Chirac's re-election pledge last year to cut taxes by 30 percent over five years was based on growth forecasts that were no longer tenable.

Mer also said it would be difficult to make further tax cuts in 2004 "except perhaps at the end of the year." The government has cut a total six percentage points off income tax since it came into office last June.

The tax cuts would be targeted, Raffarin said.

They would be financed by economies in public spending and reforms, and not by an increase in the main social security levy, the CSG -- a tax that draws in more money for the state than income tax because it is applied far more widely.

"No rise in the CSG," Raffarin said.

"We have to control public spending and be close to zero growth (in public spending)," he added.

PENSION REFORM

Raffarin spoke after hundreds of thousands of people took to the streets earlier on Thursday to protest against the government's planned reform of the state-run pension system.

Despite the strike, which caused travel chaos and also shut down schools as teachers went on strike, Raffarin said the government would push ahead with the pension reform -- a shake-up it says is needed as the system faces a funding crisis.

"We will launch the pension reform," he said. "I'll stay the course, I'll see it through in the timetable I promised." The government aims to pass the reform by the summer.

The pension system in France, like other European countries, faces an "age crunch" later this decade as the post-war baby-boom generation starts to retire.

The baby-boomers' exodus from the work force will crank up the strains on the pay-as-you-go system, which relies on each generation of workers paying for their elders' retirement.

Raffarin said the reform would harmonise the amount of time that public and private sector workers pay into the system.

Currently, public sector employees contribute for 37-1/2 years to qualify for full pension rights, while their private sector colleagues must make payments for 40 years. "I think the systems will converge... as far as the duration of contribution is concerned," Raffarin said, adding that the government aimed to complete this harmonisation by 2008.

A similar plan was abandoned by the previous conservative government after crippling strikes in 1995, and is partly blamed for the administration's downfall in 1997.

The outlook for the broader economy was clouded by the war in Iraq, Raffarin said. "Today, you can't see beyond the next six months. That's the truth of the matter," he added, describing the slowdown in the French economy as "very strong."

The government last month halved its economic growth forecast for 2003 to 1.3 percent.

Turning to France's deficit situation, Raffarin said he supported the European Union's Stability and Growth Pact on fiscal discipline, despite France's public sector deficit busting the EU's limit last year. (Additional reporting by Jon Boyle)

Copyright 2003, Reuters News Service