France needs more ambitious deficit-reduction plans - audit office

PARIS (Reuters) - The French government needs to come up with more ambitious plans to improve the public finances, the public audit office said on Tuesday, warning that efforts so far had all but stalled.

The Cour des Comptes said in its annual report that President Emmanuel Macron's long-term deficit-reduction plans had been blown off course as his government cut taxes faster than spending.

"The improvement in the public finances, which has been very gradual in recent years, has nearly ground to a halt," the independent audit body said in the report.

The government expects to cut the public sector budget deficit to 2.2% of economic output this year from 3.1% in 2019, when it was temporarily inflated by one-off measures and emergency tax cuts in the face of violent street protests over high taxes and Macron's pro-business policies.

In 2018, the deficit stood at 2.5% of gross domestic product, which means that France had reduced the budget shortfall by a lacklustre 0.3 percentage points in two years.

After falling behind on its deficit-reduction plans, Macron's government has indicated that it aims to update its financial objectives in the coming months.

"It must target an ambitious reduction in the structural deficit in line with European rules that doesn't push the bulk of the required effort to the very end of the planning period," the office said.

In a written response to the report, the Finance Ministry said that the updated plan would map out the way to "a sustainable recovery in our public finances".

While Macron's reforms have found favour from economists and businesses, the government has avoided big, unpopular spending cuts that might render its reform drive politically unpalatable.

Moody's downgraded its outlook on France's ratings to stable from positive on Friday, citing insufficient measures to manage a sustainable and clear downward trend in the country's public debt ratio.

Despite the lack of progress on its public finances, France is under no pressure from borrowers to do more, with the yield on its benchmark 10-year bond currently close to all time lows at -0.2% <FR10YT=RR>.

(Reporting by Leigh Thomas; Editing by Richard Lough and Catherine Evans)