July 4, 2017 / 4:39 PM / a month ago

French PM says time to end spending addiction, delays tax reforms

French Prime Minister Edouard Philippe is applauded after his speech on the government general policies plans at the National Assembly in Paris, France, July 4, 2017.Philippe Wojazer

PARIS (Reuters) - Prime Minister Edouard Philippe told lawmakers on Tuesday that it was time to end France's addiction to easy public spending, promising to cut expenditures over the next five years and rein in debts that he said were at an unacceptable level.

France's new president, Emmanuel Macron, regards taming spending and reducing its budget deficit as key to winning the trust of European Union partner Germany and persuading Berlin to embark on reforms to shore up the bloc.

Nonetheless, Philippe's talk of austerity comes just as other major economies such as Germany, the United States and even Britain are signalling an easing of fiscal policy to underpin growth.

Last week France's independent auditor revealed a more than 8 billion euro funding shortfall in this year's budget, forecasting a deficit once again above the EU cap of 3 percent of national income.

"The French are hooked on public spending. Like all addictions it doesn't solve any of the problems it is meant to ease. And like all addictions it requires willing and courage to detox," Philippe told the National Assembly to applause.

Philippe said that for every 100 euros Germany raised in taxes it spent 98 euros, while France spent 125 euros for every 117 euros levied in taxes.

"Who really believes this situation is sustainable?"

Philippe said his objective was to haul the deficit below the EU's cap this year and he would target cuts in spending by three percent of national income over five years.

But in a sign of how Macron and his government are having to re-adjust the timing of tax cuts after the extent of the budget overshoot was revealed, Philippe announced a year's delay to a key campaign promise.

He said the centrist government would convert the last Socialist government's flagship "CICE" tax credit for companies into a permanent reduction in payroll charges in 2019.

Reforms to exempt non-property related assets from the country's wealth tax will also take effect in 2019, he said. Meanwhile, corporate tax will be gradually reduced to 25 percent from 33.3 percent now by 2022.

Some opponents said Macron should take responsibility for government finances since he served as economy minister from 2014-16 under his Socialist predecessor Francois Hollande.

"Mr Macron ... won't kid anyone that he wasn't responsible too," said Christian Jacob, head of conservative party The Republicans in parliament.

For highlights of Philippe's comments, click on

RESHAPING POLITICS

Macron's upstart Republic on the Move (LREM) party has secured a comfortable majority in the National Assembly - and on Monday France's youngest leader since Napoleon made clear his impatience to complete the reshaping of the political landscape that he has begun.

Macron told lawmakers from both chambers at the palace of Versailles on Monday that it was time to prepare for change.

Philippe acknowledged that the record high abstention rate in June's parliamentary election meant his government would have to tread carefully with its social and economic reform agenda, but that France could not ignore its problems.

"No one takes this majority as a blank cheque," the prime minister said in a more than hour-long speech that ranged from climate change to Britain's planned departure from the EU and was peppered with applause.

In a dig at U.S. President Donald Trump ahead of this week's G20 summit, Philippe said that people who turn their backs on the Paris climate change deal showed "more than just a simple misunderstanding of the world that is coming".

"The ostrich is without doubt a nice animal, but putting your head in the sand has never prepared anyone for the future."

On Europe, Philippe stressed Macron's stance that any talks with Britain over its future relationship with the EU would only come after orderly negotiations over its exit from the bloc.

"Conducting orderly negotiations over the United Kingdom's exit will be a prerequisite for the future relationship's framework," Philippe said.

Additional reporting by Paris bureau; writing by Richard Lough; editing by Mark Heinrich

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