France said on Friday it would fail to meet deficit goals agreed with the European Union, with rising debt and slowing growth leaving President Nicolas Sarkozy little room to boost the flagging economy. The government unveiled its 2009 budget plans with a deficit forecast of 2.7 percent of gross domestic product for this year and next, against a previous promise of 2.5 percent in 2008 and 2.0 percent in 2009. The program, announced amid a global financial market crisis that has cast a pall over the world economy, would keep France under the European Union limit of 3 percent. But the budget projections are based on an economic growth forecast of one percent for 2009 which many analysts said was unrealistic. “France is systematically incapable of sticking to its stated goals and that translates into a general behavior which is to spend money when there is some,” said Philippe Waechter, director of economic research at Natixis Asset Management. A spokeswoman for the European Commission said it noted France planned to keep its budget deficit below the 3 percent limit but that it would need to study the draft before making further comment. France had also promised to bring the deficit into balance by 2012 but the government seemed to have abandoned that aim, forecasting a shortfall of 0.5 percent, though Budget Minister Eric Woerth told French radio the goal was still possible. Brussels only ended a disciplinary procedure against France last year for breaching the deficit limit from 2002 to 2004. The debt-to-GDP ratio was set to climb to 65.3 percent in 2008, from 63.9 percent in 2007 and to 66 percent next year, above the EU's limit of 60 percent, the budget said. The budget follows a speech by Sarkozy on the economy on Thursday in which he lambasted market excesses and said the financial crisis would have ramifications for French unemployment and purchasing power for months to come. French ministers have so far denied the economy was in recession but Sarkozy said there would be no austerity package as it risked “making the recession worse”. Data on Friday confirmed the economy shrank 0.3 percent in the second quarter. A recession is normally defined as two consecutive quarters of negative growth. Nevertheless, the finance ministry said the 2009 budget represented an “unprecedented effort at controlling spending”. It said spending was rising at a slower rate than inflation and said 30,627 civil servants retiring this year would not be replaced, as part of a previously announced reform. But tax receipts are expected to fall since the international financial crisis is hurting company profits, particularly in the banking industry. The government said it was expecting a 2.9 percent fall in tax revenues from companies next year. Consumers have also been cutting spending, reducing VAT receipts, while an expected rise in unemployment would lead to higher benefits costs. High inflation is also expected to boost the government's bill for salaries and pensions, and to add to the cost of servicing inflation-linked bonds in 2009. Sarkozy took office in 2007 promising to address French concerns about purchasing power and to reduce the tax burden but employers group Medef has complained there are over 85 different taxes on businesses and that they are the highest in the world. The budget includes a tax increase on investments to fund a new measure aimed at encouraging the unemployed to find jobs. It also includes several previously-announced tax cuts, including around 2.2 billion euros from a tax package unveiled last year.
