France's new Socialist government announced tax rises worth 7.2 billion euros on Wednesday, including heavy one-off levies on wealthy households and big corporations, to plug a revenue shortfall this year caused by flagging economic growth.
In the first major raft of economic measures since Francois Hollande was elected president in May promising to avoid the painful austerity seen elsewhere in Europe, the government singled out large companies and the rich.
An extraordinary levy of 2.3 billion euros (S$3.60 billion) on wealthy households and 1.1 billion euros in one-off taxes on large banks and energy firms were central parts of an amended 2012 budget presented to parliament.
The law, which includes tax increases on stock options and dividends and the scrapping of an exemption on overtime, should easily receive approval by a July 31 deadline after the Socialists won a comfortable parliamentary majority at elections last month.
Hollande says the rich must pay their share as France battles to cut its public deficit from 5.2 per cent of GDP last year to an EU limit of 3 per cent in 2013 despite a stagnant economy and rising debt.
"We are in an extremely difficult economic and financial situation," Finance Minister Pierre Moscovici told a news conference. "In 2012 and 2013, the effort will be particularly large. The wealthiest households and big companies will have to contribute."
The budget followed a grim assessment of public finances on Monday by the state auditor, which warned that 6-10 billion euros of deficit cuts were needed in 2012 and a hefty 33 billion in 2013 for France to avoid a surge in public debt dragging it into the centre of the euro crisis.
One of the highest state spending levels in the world has raised France's debt by 800 billion euros in the last 10 years to 1.8 trillion - equivalent to 90 per cent of GDP, the level at which economists say debt starts to hinder economic growth.
Budget Minister Jerome Cahuzac said that, while the initial focus this year was on tax rises for the wealthy, the government would progressively rein in its expenditure from 2013 onwards.
"Cutting spending is like slowing down a supertanker: it takes time," he told Reuters.
Having promised to freeze central government spending without cutting staffing levels, Hollande will now face the difficult task of convincing France's powerful public sector unions to accept a cap on pay rises and promotions.
This is likely to figure on the agenda of a "social conference" next week with unions and employers.
"I think the unions accept this idea of rigor," Civil Service Minister Marylise Lebranchu told RTL radio, insisting that the measures would not amount to draconian austerity.