2005 Finance Bill - Excerpt from the communiqué issued following the Council of Ministers’ meeting, Paris 22.09.2004

The Ministre d’Etat, Minister for the Economy, Finance and Industry, presented the 2005 Finance Bill.

I. After two difficult years (1.2% in 2002 and 0.5% in 2003), the French economy picked up again in the first half of 2004. With confirmation of the recovery in Europe, a favourable growth rate is expected in 2005. The 2005 Finance Bill is based on growth of at least 2.5% in 2004 and a further 2.5% in 2005. The government’s policy should allow France to maintain a growth rate higher than the European average, since the forecast for the Euro Area is +1.9% in 2004 and +2.2% in 2005.

This resumption of growth in France, despite the uncertainties of the international environment, should encourage the currently perceptible signs of improvement in the labour market and bring a lasting decline in unemployment in 2005.

II. The 2005 Finance Bill reflects the implementation of four priorities: to cut the deficit, support growth and employment, enhance social justice and finance the State’s core policies [justice, rule of law, defence, police, etc.].

1. Cut the deficit: the 2005 Finance Bill reduces the deficit to €44.9 billion, i.e. down by €10.2 billion compared with the 2004 Finance Bill. This is the largest-ever scheduled cut in the State deficit in a single year. It is the result of a significant increase in revenue (up 6.4% compared with the initial 2004 Finance Bill) thanks to the improved economic situation and greater control of expenditure.

The volume of State expenditure has in fact stabilized, amounting to €288.8 billion, i.e. up 1.8%. For the third year running, the increase in expenditure is thus strictly limited to inflation.

This cut in the State budget deficit brings the government deficit (State, social services, local government, etc.) down from 3.6% of GDP in 2004 to 2.9% of GDP in 2005, in line with France’s commitments to her European partners.

2. Support growth and employment, while preparing for the future: this is an absolute priority. Job cuts and relocations are not inevitable. The 2005 Finance Bill includes several tax incentives designed to safeguard existing jobs and encourage the creation of new ones:

- the removal over two years of the corporate tax surcharge and extension until 31 December 2005 of the relief on the local business tax [taxe professionnelle based on capital and turnover] for new investment;

- a range of specific measures to combat relocations, encourage the establishment of centres of excellence in order to strengthen at local level synergies in the sphere of innovation and technological development, and incentives for businesses which have left the country to relocate their production facilities in France;

- a new scheme to encourage apprenticeships to make it easier for young people to find their first jobs.

Finally, €1 billion is earmarked for the national research plan.

3. Enhance social justice: €1 billion to implement the national social cohesion plan in 2005.

In addition to the substantial increase in the minimum wage on 1 July 2005 raising consumer purchasing power by 3.7%, the income of the lowest wage earners will benefit from the 4% rise in worker tax credits on 1 January 2005.

Inheritance tax for legacies of less than €100,000 is abolished to enable the French to pass on to their heirs the fruits of a lifetime’s work.

Finally, as regards the Pacte civil de solidarité (PACS) [Civil Solidarity Pact, which offers legal status to all unmarried, heterosexual and homosexual couples], the requirement for couples to live together for three years before qualifying for joint taxation is removed, thereby making their tax status the same as that of married taxpayers.

4. Fund the State’s core policies: resources have been released for the priority sectors. The defence, internal security and justice estimates Acts and the commitments to Official Development Assistance (ODA) are respected. The rise in ODA continues in order to help honour France’s pledge to bring our total effort up to 0.5% of GDP by 2007. The goal for 2005 is 0.44% of GDP, compared with 0.42% in 2004, with a special effort vis-à-vis the poorest countries. In total, the estimates Acts and ODA account for a €1 billion increase in appropriations.

Thanks to efficiency gains achieved through modernization, the Finance Bill provides for 10,200 job cuts. All the government departments will experience job cuts, except for the priority sectors, where nearly 3,000 additional jobs are created. In total, nearly 7,200 jobs are cut.

III. A milestone in budgetary reform:

For the first time, the Finance Bill classifies, for information purposes, the State budget appropriations more clearly, breaking them down by objective. The government can thus show how much money is going to each of the 34 missions of the general budget, nine of which are interministerial, and to each of the 132 programmes making up these missions.

Finally, a year ahead of the date scheduled for the budget reform, the government is going to present to Parliament, during the 2005 Finance Bill debate, a description of strategies, objectives and targets for each of its policies./.