France's Macron unveils tricky first budget

Ministers insisted the 2018 budget would benefit both rich and poor after criticism from left-wing opponents about the slashing of a tax on financial investments which raised €3.5 billion (US$4 billion) last year.

Left-leaning newspaper Liberation ran the front-page headline "Hero to the rich" alongside a picture of Macron, a former investment banker who came to power in May promising to make it easier to do business in France.

"We want to create wealth before redistributing it," Economy Minister Bruno Le Maire told a press conference.

He defended the budget as one which would "benefit all French people without exception", not just the richest, saying cuts to household tax - due to be scrapped for 80 percent of families by 2020 - would boost the purchasing power of millions.

"We wanted to protect the least well-off, to protect the most vulnerable," he added, with ministers pointing to measures to help low-paid workers and more support for those caring for disabled children.

High-paid finance workers will notably face lower taxes on their salaries as the government eyes a lucrative slice of London's banking industry, with multi-nationals shifting business away from Britain ahead of Brexit.

In total, France plans some €7 billion (US$8.2 billion) in tax cuts, lower than the 10 billion initially planned.

Macron faces a tricky balancing act as he seeks to lower taxes while also slashing the deficit - something he sees as key to earning credibility with European leaders as he pushes for ambitious EU reforms.

Some €16 billion of spending cuts are included in the budget - social security alone is due to shed 5.5 billion - though these targets, too, are lower than originally planned.

The budget puts a freeze on major infrastructure projects, while nearly 1,600 civil service jobs will be axed.

'WORSENING INEQUALITY'

Opponents on the left have called Macron's wealth tax reforms a sop for the rich, while he insists he needs to encourage investors to fund companies in France as he seeks to lower a 9.5 per cent unemployment rate.

Under the changes - a long-time demand of business groups - gains on financial investments will be taxed at a flat rate of 30 per cent, rather than under a progressive regime.

"These tax measures from the right-wing will have a brutal and violent effect on worsening inequality," former Socialist economy minister Michel Sapin told Paris Match magazine on Tuesday.

Corporation tax is set to go down to 25 per cent by 2022 - down from 33 per cent currently.

DEFICIT DOWN

On Tuesday, Macron set out his vision for far-reaching EU reforms, urging his European partners - particularly Germany - to go further in linking their economies, governments and armies.

The 39-year-old sees it as crucial to show that France can lead by example by getting its public finances in order after a decade of running large deficits due to high public spending.

France's economy is currently growing at around 1.7 per cent, but it remains one of the few countries with a deficit above the EU-mandated three percent of GDP.

It is already set to go down to 2.9 per cent this year - the first time it will have met the three-percent target in a decade - but Macron wants to trim it further to 2.6 per cent in 2018.

The EU's economy commissioner Pierre Moscovici welcomed the belt-tightening.

"The average deficit in the eurozone is not 3.0 per cent, it's 1.4 per cent," he told France 2 television. "If you want to be an example to Europe, you have to lead by example at home."

Despite the cuts, several ministries won a boost to their budget - notably defence, where spending has been a sore point with the military in recent years.

The head of the armed forces sensationally resigned his post this summer in a blazing row with Macron over cuts to defence spending introduced in an interim budget for 2017, passed shortly after he was elected.