France posted its smallest public deficit last year since the global financial crisis of 2008, data showed on Friday, making this year's government target "perfectly credible" according to the finance minister. The INSEE statistics agency said the public deficit, which includes the combined shortfalls of the central state, local government and welfare system budgets, fell to 3.5 percent of economic output last year.
That was below the 3.8 percent that Paris - long criticised in Brussels for failing to meet its budget promises - had targeted in its commitments to European Union institutions and other euro zone countries. "It means we're cutting the deficit while supporting growth at the same time," Finance Minister Michel Sapin said on BFM TV.
"People very often say that's contradictory. But we're proving that's not true. You can be serious on the budget front and allow growth to pick up," he said. While he said this year's government deficit target of 3.3 percent was now "perfectly credible", he ruled out tightening the finances by setting a more ambitious goal, with a presidential election little more than a year away. Deeply unpopular over tax hikes early in his presidency and his failure to get unemployment down, President Francois Hollande has promised not to seek re-election unless joblessness falls, and has offered tax relief for the poor and companies.
Unlike in the early years Hollande's presidency, the deficit reduction last year was achieved while cutting taxes, with the tax burden falling for the first time since 2009, to 44.5 percent of economic output from 44.8 percent. Much of the improvement in last year's deficit was due to better than expected economic growth at 1.2 percent compared with the 1.0 percent the government had banked on in its budget.
The deficit also benefited from local governments running a budget surplus of 700 million euros ($781 million), with their accounts in the black for the first time since 2003, as Paris tightened the screws on their allowance. Despite the smaller deficit, borrowing to finance the budget shortfall pushed gross debt to a record 95.7 percent of gross domestic product last year. But the increase was the smallest since 2007, Sapin said.
The government aims to further improve its finances this year on expectations that growth will reach 1.5 percent as business investment and household spending recovers. However, in its fourth quarter gross domestic product report published on Friday, INSEE said households used an increase in disposable income, boosted by low energy prices, to raise their savings rate to 15.9 percent, the highest level since mid 2011.
Meanwhile, companies saw profit margins rise to 31.4 percent of their value added - the highest since early 2011 - but that did nothing to increase their investment rate which was steady for the third quarter in a row at 23.0 percent. Record high jobless numbers also remain a weight on consumer confidence, which INSEE also said on Friday fell to a nine-month low.
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