France said on Friday it would fail to meet deficit goals agreed with the EU, with rising debt and slowing growth leaving President Nicolas Sarkozy little room to boost the flagging economy.
The government unveiled its 2009 budget plans with a deficit forecast of 2.7 per cent of gross domestic product for this year and the next, against a previous promise of 2.5 per cent this year and t5wo per cent next year.
The outlook would keep France under the EU limit of three per cent, but the budget projections are based on an economic growth forecast of one per cent for next year which many analysts said was unrealistic.
"I don't think that we are going to be able to manage 2.7 per cent in 2008 or 2009," said Alexander Law, chief economist at Xerfi. "I think it is way too optimistic because even if they can keep expenditure down ... the problem is (that) with very weak growth, you're going to have very weak fiscal income."
France had also promised to bring the deficit into balance by 2012 but the government seemed to have abandoned that goal, forecasting a shortfall of 0.5 per cent.
The debt-to-GDP ratio was set to climb to 65.3 per cent this year, from 63.9 per cent last year and to 66 per cent next year, above the EU's limit of 60 per cent.
The budget follows a speech by Mr Sarkozy on the economy on Thursday when he said the financial crisis would have ramifications for French unemployment and purchasing power for months to come.
French ministers have so far denied the economy was in recession but Mr Sarkozy said on Thursday there would be no austerity package as it risked "making the recession worse".
Data on Friday confirmed the economy shrank 0.3 per cent in the second quarter. A recession is defined as two consecutive quarters of negative growth.
Tax receipts are expected to fall since the international financial crisis is hurting company profits, particularly in the banking industry, and consumers are cutting back on spending.
The government said it was expecting a 2.9 per cent fall in tax revenues from companies next year.
High inflation is also expected to boost the government's bill for salaries and pensions, and to add an estimated extra €3 billion to the cost of servicing inflation-linked bonds next year.
French people say their main concern is diminishing spending power. When Mr Sarkozy took office last year he promised to address their worries by reducing the tax burden on consumers and firms.
The head of France's powerful Medef employers' group, Laurence Parisot, complained on Tuesday that there were 85 different taxes on businesses and said taxes and social costs were "the highest in the world".