Valls seeks reform boost with French confidence vote

Reuters News
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Posted: Apr 08, 2014 8:46 AM

By Leigh Thomas

PARIS (Reuters) - New Prime Minister Manuel Valls will test France's political commitment to reform on Tuesday in a confidence vote that should allow the Socialist government to press ahead with a drive for greater competitiveness.

Hours ahead of the vote, Valls unveiled plans for new budget savings on top of belt-tightening already in the works, but his Socialists said they understood his aim was simply to channel the extra cash into tax breaks for low-income households.

Valls, appointed by President Francois Hollande last week after his Socialists suffered a rout in local elections, was expected to win the confidence vote. That outcome was made all the more likely as his minority Greens allies said most of their deputies would back the newly reshuffled government.

Valls is to detail plans to phase out 30 billion euros ($41 billion) in payroll tax on companies in exchange for their hiring more staff.

One of France's most popular politicians, the tough-talking former interior minister will also outline broader priorities in his first major policy speech at 1500, before a confidence vote due in early evening.

Valls told Socialist lawmakers ahead of the vote that he planned to unveil additional budget savings in June on top of 50 billion euros planned over 2015-17, Christian Eckert, the head of the finance commission in the lower house of parliament, told Reuters.

Hollande's government is struggling to meet commitments to the European Union to lower its deficit but has faced resistance from the Greens, which pulled their ministers from his government last week, and from the left fringe of his own Socialist Party.

He did not say how large the cuts would be but Socialist Party spokesman Thierry Mandon said they would likely be used to finance extra tax breaks for low-income households, something Hollande promised after the local election trouncing.

The hard left's backing is vital for what Hollande calls his "Responsibility Pact", which is aimed at reviving French firms' waning competitiveness by lowering their payroll costs.

"Failing to support the government ... would be a political mistake," Bruno Le Roux, head of the Socialist group in parliament, told Europe 1 radio.

"I am telling every deputy: failing to vote confidence is to think that there is a better alternative elsewhere."

OPEN TO NEGOTIATION

Finance Minister Michel Sapin said Valls would offer some details about where budget savings will come from. A government source said central state spending would account for nearly 20 billion euros, spending by local authorities 10 billion and another 20 billion would be from the welfare system.

Concerned that France's deficit-reduction targets are slipping out of reach, the European Commission, the German government and credit ratings agencies all want to see precise details.

French entrepreneurs also raised pressure on Hollande to spell out his plans to help business grow and hire workers.

"What we are saying to the President of the Republic is simple: pay attention to what's happening," Guillaume Cairou, head of the Club des Entrepreneurs, wrote in a statement.

"Listen to business, because to defend France is to defend its companies."

Labour Minister Francois Rebsamen said France was committed to reducing its deficit from 4.3 percent of output last year to three percent as promised but left open whether it could do that by next year as promised to EU partners.

"What matters is the path and the path that's to be set today leads to lower public spending to reduce budget deficits," he told RTL radio.

Asked if France would seek to renegotiate the timetable it has agreed for deficit-cutting, he said: "We can negotiate, that is of course something that is negotiable."

Hollande's Socialists have 291 seats out of 577 in the lower house of parliament, but more than 80 signed a letter over the weekend calling for a change of policy after the local election drubbing.

The confidence vote could fail if there are more than 30 Socialist abstentions, although it also depends on what the Greens and other minor parties do.

(Additional reporting and writing by Nicholas Vinocur; editing by Ralph Boulton and Giles Elgood)