The French government has unveiled plans to raise the retirement age from 60 to 62 in a sweeping overhaul of the pensions system that labour unions immediately vowed to fight.
Under the plan, French workers will have to pay contributions for a longer period and new taxes will be slapped on high-income earners and on capital gains to help plug a gaping hole in pensions funding.
"Working longer is inevitable. There is no magical solution," Labour Minister Eric Woerth said as he presented the changes, the most controversial of which is pushing back retirement to 62 by 2018.
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Talk of raising the retirement age had been taboo in France where the right to stop working from age 60 has been enshrined since 1982, a legacy of Socialist president Francois Mitterrand.
The reform package will allow the government to balance its books and achieve "zero-deficit" in its pensions scheme by 2018, Woerth said.
New taxes on wealthy households coupled with an increase in taxes on stock options, capital gains and dividend income will bring in an extra 3.7 billion euros (4.6 billion dollars) in revenue in 2011.
The long-overdue pension reform is aimed at helping the government meet its announced deficit target of 3-percent of GDP in 2013.
Finance Minister Christine Lagarde said it could reduce the public deficit by 0.5 percent of GDP by 2013 and 1.9 percent of GDP by 2020.
"All of our partners in Europe have done it," Woerth argued. "It is not possible to stay on the sidelines of this movement."
France's biggest union, the CGT, told the government to go back to the drawing board and come up with another plan, calling it a "flagrant injustice" that put the burden of reform on workers.
Jean-Claude Mailly, leader of the Force Ouvriere union, called on the government to immediately withdraw its draft legislation, saying it was "socially unjust and economically inefficient."
Reforming France's pensions system is shaping up as the centrepiece of President Nicolas Sarkozy's agenda as he heads for a re-election battle in 2012.
The changes outlined Wednesday will be contained in a pensions reform bill to be brought before cabinet next month before heading to parliament in September.
The bill could however be revamped along the way as France's unions turn to strikes and street protests to try to force the right-wing government to back down.
Six main unions have called a nationwide strike for June 24.
But while changes may occur, Woerth said Wednesday evening the government would not bend on raising the retirement age.
"We will not go back on the age measures because they are serious," he told French television channel TF1. "They are also absolutely socially acceptable."
Like many other European countries, France is facing a funding shortfall in its pensions plan due to a growing older population and fewer working-age people paying contributions.
The deficit is on track to reach 45 billion euros in 2020 and could reach between 72 and 115 billion euros by 2050, according to the COR pensions advisory council.
French workers on average retire at a younger age than most of their counterparts in Europe and the proposed changes will still leave them with one of the lowest retirement ages in Europe.
The plan would extend the contributions period to 41 years and three months from 40.5 years and the retirement age will be raised gradually to 62 over the coming eight years.
So far, Sarkozy's government has signaled that it is not too worried about social unrest as polls show a majority of the French are mostly concerned about keeping the pensions scheme afloat.
The government's roll-out of pensions reform came just days after it announced spending cuts worth 45 billion euros over the next three years, joining belt-tightening moves sweeping Europe.
