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France unveils new austerity budget

Tax on higher-earners and duty increase on cigarettes, alcohol and fizzy drinks are among the measures to cut deficit

CIGARETTE and alcohol price rises and a new tax on France's richest residents are among the measures unveiled by the government in an €11bn deficit reduction package.

Prime minister François Fillon says the new measures will target well-off individuals and big businesses - but they have angered opposition leaders and unions, who say ordinary workers will be hit as well.

The headline announcement was a new "exceptional contribution" for households earning more than €500,000 a year. The 3% tax is forecast to bring in €200m a year and will be scrapped as soon as the budget deficit is back under control.

The deficit currently stands at 7% of its GDP - a figure President Sarkozy wants to cut to 3% by 2013. Economic growth in France was flat in the second quarter of 2011.

Fillon said: "Our country cannot live beyond its means forever.

"Well-off household and the very rich will be asked to contribute more than people from modest backgrounds - large businesses more than small and medium firms."

Most of the major personal tax breaks have been kept - and employees' overtime hours will continue to be exonerated from income tax and benefit from reduced social charges.

However, some areas of consumer spending have been targeted. The price of cigarettes will rise by 6% within the coming days - a measure expected to bring in an extra €100m a year in revenue - and a further 6% in the 2012 budget.

This budget will also include a duty increase on spirits and beer and a new tax on fizzy drinks with added sugar, forecast to raise €120m a year.

Tax on health insurance (complémentaires santé) is set to rise by up to 7%, bringing in an estimated €1.1bn a year.

Theme park ticket prices will also go up, with the rate of VAT charged increasing from 5.5% to 19.6%.

For companies, the tax breaks available when incurring a loss will be limited - raising an estimated €1.5bn and harmonising the French corporation tax system with that of Germany.

Unions will meet on September 1 to discuss their response to the budget. The CFDT trade union said: "The efforts required of workers are quite significant [compared to] that demanded of companies and very high-earners."

Socialist Party spokesman Benoît Hamon said: "France has officially plunged into austerity" and green party presidential candidate Eva Joly said the measures were "short-term", politically motivated and lacked vision.

Front National leader Marine Le Pen said: "The middle classes are constantly being asked to make sacrifices. The price rise on certain products is particularly unpopular."

The government has also announced that a planned reform of dependency arrangements in France - including better help for families looking after elderly people - has been pushed back to 2012.

The changes, which were promised by President Sarkozy in 2007, have been delayed because Fillon said it would have been "irresponsible to deal with it in the current economic context".

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