France's new centre-right government will cut income tax by 5% this year, Prime Minister Jean-Pierre Raffarin has said.

He also said the government would prepare the way for part-privatisation of two key utility companies.

The legal status of Electricite de France and Gaz de France will be changed to allow a progressive opening-up of ownership, Mr Raffarin told parliament.

The power and gas giants have been in the state's hands since being nationalised in 1946.

Autumn tax cut

In recent years, the two have been strongly criticised for taking advantage of liberalised European markets to buy up rivals abroad while remaining protected from competition in their home markets.

Mr Raffarin said the two companies would remain in the public sector and the status of their employees would be unaffected.

As far as income tax was concerned, the prime minister told parliament the 5% income tax cut for all taxpayers would be effective this autumn.

He said it was a step towards the target of reducing income tax by one-third.

Only half of French families pay income tax.

Pensions shake-up

Mr Raffarin promised to press the case at the European Union for a reduction in French value-added tax (VAT) in restaurants and on CD music recordings.

But he said his government would also be pushing for taxes to be harmonised across Europe.

Pensions are another problem for France with its rapidly ageing population.

Mr Raffarin said he would not tamper with the legal retirement age of 60 and would seek solutions by the end of June 2003.

He said the state-run system should be preserved, but tax incentives should be considered for those who wanted to make other arrangements for their retirement.

Mr Raffarin also broached the sensitive subject of the huge civil service.

He said that not all of those retiring in the years ahead would be replaced.

"Depending on the sector, staffing levels will be increased, stabilised or reduced," he said.