France's core deficit targets off course - report

PARIS (Reuters) – France will tighten its budget less than promised even when the impact of the downturn in the economic cycle is stripped out of the equation, Les Echos newspaper reported on Monday.

If confirmed when the 2015 budget is presented on Wednesday, the news would add to an increasingly grim outlook for the public finances after the health minister said late Sunday the welfare deficit was expected to run nearly one billion euros (781.60 million pounds) over budget this year.

The Socialist government already acknowledged earlier this month that it would not meet its targets to cut its headline public deficit in the coming years due to faltering economic growth and weak inflation.

As a result, France’s headline public deficit would only fall in line with its EU-agreed target of 3 percent of economic output in 2017 instead of 2015 as Paris previously promised.

Les Echos said the government would also reveal when it presents its 2015 budget on Wednesday that it would cut its underlying structural deficit, which takes the economic cycle into account, less than previously expected.

That could be more problematic for France than missing its headline deficit target because the European Commission focuses primarily on the structural deficit when assessing whether a country is living up to its fiscal promises.

The structural deficit is considered a more useful measure of state financial management because it is designed to reflect the underlying match-up or mismatch between long-term spending and revenues by stripping out the short-term gyrations caused by the ups and downs of the economic cycle.

Les Echos said the structural deficit would be cut by about only 0.25 percent in 2015 and 2016, whereas the government has promised 0.8 percent and 0.5 percent respectively.

The Finance Ministry declined to comment on the report.

The newspaper said the government will also cut its estimate for economic growth potential, which is used when calculating the structural deficit. The estimate will be reduced to 1 percent from 1.5 percent, bringing it in line with the Commission’s own forecast.

The government will seek clemency from the European Commission on the grounds that exceptional circumstances of weak growth and inflation have blown its budget-tightening efforts of course, Les Echos said.

Adding to the strain on the overall budget, the social security deficit will hit 11.7 billion euros (9.14 billion pounds) this year instead of an originally forecast 9.8 billion, Health Minister Marisol Touraine said.

In 2013 the social security deficit stood at 12.5 billion euros. Touraine told France Inter the 2015 budget would not include a freeze in the level of welfare outgoings or a reduction in the level of reimbursements for treatments.

“Other measures are envisaged,” she said without giving details.

(Reporting by Mark John and Leigh Thomas)

France's core deficit targets off course - report