By Leigh Thomas
PARIS (Reuters) - New Prime Minister Manuel Valls unveiled a broad package of tax and public spending cuts on Tuesday, vowing to bring France's public deficit down while fuelling growth and resisting outright austerity.
In a keynote policy speech to parliament after being chosen last week by President Francois Hollande, Valls said an over-strong euro was damaging economic recovery. He served notice that France wanted to launch a debate on the monetary policy of the independent European Central Bank, which he described as "less expansionist" than that of its international peers.
"I am all for respecting our commitments, for budgetary rigour but not for austerity," he told the lower house ahead of a confidence vote he is likely to win because of the absolute majority of ruling Socialists.
"I do not want to harm growth, otherwise our deficits won't fall and neither will unemployment," Valls said.
"Yes, we must put our public finances right but not destroy our social model or services - the French people would never accept that," he said to cheers from the left, adding: "We will explain that to our European partners."
German and EU officials this week said France should not be granted more time to bring its deficit down from 4.3 percent last year to an EU target of three percent in 2015 as promised.
Valls, who earlier on Wednesday told Socialist deputies that further savings might be required in a supplementary budget to pay for the tax cuts, did not spell out whether France would be able to hold its 2015 deficit promise.
Saxo Banque analyst Christopher Dembik said that, based on the figures given by Valls, that target was impossible.
"France will in coming weeks have to negotiate with its European partners on a new postponement - which, given existing statements out of Brussels and Frankfurt - is not a done deal," he said in a note.
Confirming an expected package of 30 billion euros ($41 billion) in payroll tax cuts on companies by 2016, Valls said the so-called "C3S" tax on companies would be scrapped by the same date, handing a total six billion euros back to business.
An existing surtax on the main corporation tax would be abolished in 2016 and the standard rate of corporation tax be cut gradually to 28 percent from 33 percent, he said.
He also announced some 5 billion euros of reductions in payroll charges and tax cuts largely aimed at low earners.
"The main thing is to restore the French people's confidence in their future," he said.
HANDOUTS?
Opposition conservatives immediately dismissed the plan as an attempt to spend France's way back to economic recovery that was doomed to fail.
"Welfare spending will rise and in the end, your social pact will become a pact of handouts," Christian Jacob, floorleader of the main centre-right UMP party in the National Assembly, said in reply to Valls.
He said the Socialist government had ruined France's credibility by repeatedly begging the European authorities for more time to bring down the deficit.
"You will pay a high price: the price of humilation with Brussels' tutelage, and the price of higher interest rates that will penalise French growth," Jacob warned.
On the public spending side, Valls said central government would bear around 19 billion euros of the total 50 billion euros in savings to be achieved by 2017, with local authorities and the health insurance fund each saving 10 billion euros.
In a surprise announcement that could add to long-term potential savings, Valls proposed that France shake-up its complex system of local government, halving the number of regions from the current 27 by 2017.
Valls was appointed to run a reshuffled government after the ruling Socialists suffered a rout in local elections where both mainstream conservatives and the far-right National Front made strong gains.
Dozens of lawmakers on the left wing of the Socialist Party urged Valls to do more for working class voters but signalled they would not risk dissolving parliament by voting against him.
Hollande's Socialists have 291 seats out of 577 in the lower house. Valls' chances of winning the vote were boosted when the minority Greens party, which dropped out of the cabinet last week, said most of its deputies would back him.
"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."
(Additional reporting by Nicholas Vinocur and Alexandria Sage; writing by Mark John; editing by Paul Taylor and Giles Elgood)
