France sticks to deficit targets, says recovery justifies delays

PARIS (Reuters) - The French government stuck to "cautious" growth and deficit targets two weeks before the release of its 2016 budget, saying it was right to ask EU partners for a delay in bringing down borrowing last year as an economic recovery was taking hold.

In a plan that is unlikely to cause as much consternation in Brussels as its admission a year ago that it would bring back its deficit to within EU limits two years later than promised, France left its main targets untouched on Wednesday.

Finance Minister Michel Sapin told a news conference the euro zone's second-biggest economy had regained credibility in Europe as European partners could see structural reforms being put in place in exchange for the delay.

"This had a political cost for the government at the time, with some even brandishing the threat of European sanctions against France," Sapin said.

"They were wrong, of course, since what became an evidence was Europe's support for our strategy, founded on the assessment that, month after month, we were keeping our promises and our objectives," he said.

Under the plan presented by Sapin, the public deficit is set to fall from 3.8 percent of gross domestic product (GDP) in 2015 to 3.3 percent next year, before falling below the European Union-mandated threshold of 3 percent in 2017.

The country's debt-to-GDP ratio will peak "noticeably below" 100 percent in 2016 before gradually falling, Sapin said.

The government also stuck to previous growth forecasts of 1 percent in 2015 and 1.5 percent next year, in line with the consensus of international organisations. Inflation will reach 0.1 percent this year, before picking up to 1.0 percent in 2016.

The government said it would continue to cut taxes for companies and families, with only 46 percent of households paying income tax in 2016, down from a peak of 52.3 percent in 2013, the year after the Socialist government took power.

Public spending will accelerate slightly in 2015 and 2016 on the back of higher inflation after rising by 0.9 percent in 2014, which Sapin said was the lowest increase ever.

France will unveil its 2016 budget on Sept. 30.

(Reporting by Michel Rose and Leigh Thomas; Editing by James Regan)