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 the next, against a previous promise of 2.5 percent in 2008 and 2.0 percent in 2009.
The outlook 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.
"I don't think that we are going to be able to manage 2.7 percent in 2008 or 2009," said Alexander Law, chief economist at Xerfi. "I think it is way too optimistic because even if they can keep expenditure down … the problem is (that) with very weak growth, you're going to have very weak fiscal income."
France had also promised to bring the deficit into balance by 2012 but the government seemed to have abandoned that goal, forecasting a shortfall of 0.5 percent.
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.
RECESSION
The budget follows a speech by Sarkozy on the economy on Thursday when he 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 on Thursday 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 defined as two consecutive quarters of negative growth.
Tax receipts are expected to fall since the international financial crisis is hurting company profits, particularly in the banking industry, and consumers are cutting back on spending.
The government said it was expecting a 2.9 percent fall in tax revenues from companies next year.
High inflation is also expected to boost the government's bill for salaries and pensions, and to add an estimated extra 3 billion euros to the cost of servicing inflation-linked bonds in 2009.
French people say their main concern is diminishing spending power. When Sarkozy took office in 2007 he promised to address their worries by reducing the tax burden on consumers and firms.
The head of France's powerful Medef employers' group, Laurence Parisot, complained on Tuesday that there were 85 different taxes on businesses and said taxes and social costs were "the highest in the world".
The budget will include a tax increase on investments to fund a new measure aimed at encouraging the unemployed to find jobs. But plans for an ecologically-friendly "picnic tax" on plastic cups and cutlery was dropped in the face of widespread grumbling.
The budget also includes several previously-announced tax cuts, including around 2.2 billion euros from a tax package unveiled last year.
