France's new Prime Minister Manuel Valls on Wednesday unveiled a politically risky freeze in state benefits as part of a plan to cut government spending by €50 billion ($70 billion).
In the clearest picture yet of a proposed budget cuts, Valls announced a planned freeze in state pensions and confirmed the pay freeze for civil servants would remain in place, as well as a block on increases of family benefit payments.
The Socialist government has pledged to make the reductions over the course of the coming three years (2015-17) in order to fund tax cuts for individuals and companies aimed at reviving a flagging economy and reducing unemployment from record levels.
More than 40 percent of the savings envisaged (€21 billion) will come from cuts in France's generous system of social benefits and its highly prized healthcare system.
Another €18 billion is to be trimmed from the budgets of government ministries and the remaining €11 billion will come from streamlining of local government, Valls said.Here are some of the key points:
The announcement has already shocked members of Valls's own Socialist Party who are threatening to vote against it when it goes through parliament.
Christian Paul, a lawmaker on the left of the party, said he and fellow Socialist deputies had been "floored" by the announcement of measures he described as "unacceptable in their current form".
"I was with 150 (Socialist) deputies and we listened to these announcements in deadly silence," Paul said, accusing the new premier of presenting his party with a fait accompli without prior consultation.
Paul said he and some other Socialist deputies would be unable to support the government if the package was not amended.
"We were not elected to organise a reduction in the spending power of pensioners, civil servants and workers who depend on social benefits," the Socialist lawmaker added.
Here are some of the key points:
- Freeze in pay for civil servants.
- Streamlining government agencies, including reduction on the number of workers. Police and education will be spared from staffing reductions.
- A drop in subsidies to local governments
- Local bureaucracy will be “simpler, easier to read, more effective and less costly”
Social welfare cuts:
- €10 billion less in health spending
- Increase in patient costs for generic drugs, more outpatient surgery and streamlining government funding units
- No increase in subsidy payments to families, renters and retirees until October 2015. It's expected to save €2-4 billion.
- A range of social benefits, including income support for the young and long-term unemployed and most state pensions, will be frozen until October 2015.
French voters have been awaiting details anxiously since January when Hollande announced his ‘Responsibility Pact’ aimed at spurring economic growth and cutting government expenses.
The prime minister, however, reassured voters a potential change to the minimum wage will not come to pass. At €9.43 an hour or €1,445 per month, France has one of the highest minimum wages in Europe.
During Valls' announcement on Wednesday, at a post-ministers' meeting press availability usually handled by a spokesman, he said: "These efforts will be fair because they will be collective…and equitably shared," French daily Le Monde reported.
Valls's critics on the left argue that the government should be seeking an easing of the eurozone's budget deficit rules to enable France to spend its way out of its current economic problems.
The former interior minister responded to that stance on Wednesday by insisting that France had to get its public finances under control if its generous system of social provision was to survive.
Public spending accounts for 57 percent of France's GDP and the national debt has risen from 50 percent of GDP in 2002 to 93.5 percent by the end of last year.
"We cannot afford to live beyond our means," Valls said. "And we have to break with this logic of debt which stealthily and progressively, is tying our hands. We have to reclaim our sovereignty."
In comparison to the swingeing cuts in social benefits implemented in some other crisis-hit European countries in recent years, the Valls proposals look relatively modest
No state benefits are being abolished or cut and with annual inflation currently running below one percent, the impact of the freeze will be limited.
Benefits for people who receive the minimum levels of pensions or income support will continue to rise in line with inflation.
Valls also confirmed that Hollande's election promise to create tens of thousands of new posts in education, the police and the prison service would be honoured.