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SOCIAL SECURITY REFORM

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PARIS-Having backed down on its proposal to reform public sector pensions in the wake of a 24-day strike last month, the French government is pressing ahead with tax increases and health care spending cuts to reduce its social security deficit.

"We should not expect any progress on public sector pensions, but the core elements of social security reform to get the deficit down are still there," says Jochen Feld, French economic analyst at investment bank Goldman Sachs & Co. in Frankfurt, Germany.

The imposition of a new 0.5% tax on all income, known as the remboursement de la dette sociale, or RDS, will take effect Feb. 1, instead of Jan. 1 as planned. The government projects that the tax will cut the country's 61 billion French franc ($12.37 billion) social security deficit to about 20 billion French francs ($4.06 billion) by the end of the year and will result in a surplus by the end of 1997.

The government is also pressing ahead with planned efforts to limit increases in health care spending. It has imposed a 2.1% ceiling on health care spending increases for 1996. This is roughly the rate of inflation and, thus, spending is frozen in real terms, Mr. Feld said.

These limits on spending increases have been opposed, however, by physician organizations in France.

"The doctors are not happy with the cap because it cuts their income growth," according to Mr. Feld.

Mr. Feld noted, however, that the current measures to get the deficit under control are only short-term solutions.

Additional long-term cuts in government spending must be made if France is to meet the Maastricht criteria for European monetary union, one of which stipulates a budget deficit of no greater than 3% of gross domestic product.

Goldman Sachs forecasts a 1995 fiscal deficit of 5.2% GDP, or about 400 billion French francs ($81.12 billion). Of this, about 320 billion French francs ($64.98 billion) is due to central government spending and the remainder is due to local government spending and the social security shortfall.

To reduce costs further, pension reforms are expected to be reintroduced.

"No one doubts that pension reform is absolutely inevitable, " said Nicolas Davenport, managing director of Willis Corroon France in Paris. But he noted that the current popular feeling in France on the matter is one of "it's all right for everybody else except me."

Although analysts say there is little appetite at present for resuming labor union protest of the government's reform program, tensions among sides in the dispute are rising.

Mr. Davenport explained that a key aspect of strike settlements in France is that the employers-in this case public entities-often agree to pay employees a portion of wages for the days they were striking.

"Part of the deal to return to work is that strike days are paid for. This is being negotiated now," he said.

However, given the ill feeling that the public workers' strike generated among private sector workers, whose benefits have been progressively cut in recent years, and public sector workers-who still oppose any effort to reduce their generous benefits-there are doubts that the unions will win payment for strike days, he said.