France to freeze welfare benefits

PARIS: France will freeze pensions and housing subsidies this year instead of increasing them in line with inflation, a draft government bill on social security showed on Wednesday, as Paris aims to cut its deficit without hurting the economy.

The freeze is part of an extra 4 billion euros in savings the government had previously announced for this year together with tax relief for lower income households.

It was detailed on Wednesday in the second leg of a small supplementary budget the government announced last week that also paves the way for payroll tax cuts next year.

The subsidies were meant to be increased on Oct. 1. President Francois Hollande's government aims to save 1 billion euros per full year by not indexing pensions above 1,200 euros to inflation, and save another 130 million euros on housing subsidies.

The government said that would mean pensioners affected by the measure would on average miss out on a monthly increase of 11 euros, while families who get housing subsidies would miss out on an increase of less than 2 euros per month.

With Hollande having reached record lows in opinion polls as voters have become increasingly angry with growing taxes and high unemployment, the government stressed that most measures would not affect low-income households.

The government said last week that from next year workers at or just above the minimum wage will benefit from cuts on the payroll tax they pay 520 euros per year for someone on the minimum wage, costing the state 2.5 billion euros in total in 2015.

To provide businesses with the transparency they have been asking for, the government also announced plans to cut payroll taxes for 2015.

Businesses will benefit from 4.5 billion euros worth of cuts in payroll tax next year as well as 1 billion euros less in one type of corporate tax.

France's public spending auditor warned on Tuesday that the public deficit could overshoot the government's 3.8 percent of GDP target this year, raising questions over whether Paris will meet its pledge to bring it into line with EU rules next year.

In order to meet the fiscal targets, the auditors called on the government to consider cutting headcount in public administration, in particular within local authorities' staff.