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UPDATE: As expected, Fillon revised growth expectations downward from 2% to 1.75%.Despite the political difficulties associated with spending cuts, Fillon says he’s seeking $1.4 billion in spending cuts for 2012. In addition, the government looks to increase capital gains taxes from 12.3% to 13.5%. It will also up taxes on alcohol, tobacco, and sugared drinks, and close real estate tax loopholes.PREVIOUSLY: The French government announced new measures today aimed at taming deficits while preserving growth and France’s coveted AAA rating.
According to Reuters, the plan will raise an estimated $15.9 billion in revenues by raising taxes on the rich and cutting tax breaks and loopholes.
Speculation that France could lose its AAA rating, economic slowdown in the first quarter, and deepening fears that the country will be dragged into the sovereign debt crisis have put French President Nicolas Sarkozy in a tight spot. Spending cuts would damage his chances for reelection next year, however France is unlikely to meet its budget deficit goals without austerity if growth continues to slow.
If this plan is effective, Sarkozy could avoid initiating spending cuts like those enacted in Italy and Spain. Such cuts would damage his chances for reelection next year.
The plan’s reception will likely depend upon the details. It is not likely to anger a group of 16 wealthy citizens who publicly offered to pay higher taxes in a statement published this week.
Prime Minister Francois Fillon will provide more specifics about the plan at a press conference scheduled for 12 PM ET.