Hollande readies tax breaks after French vote losses - government source

PARIS (Reuters) - The French government is preparing tax breaks for households after a final round of local elections on Sunday in which President Francois Hollande's Socialist party has suffered losses, a government source said. Voters already punished Socialist candidates in the first round of town hall votes last Sunday. Marine Le Pen's far-right National Front made gains, winning a former left-wing bastion and positioning itself for more victories in the run-offs. "We are still in a preparatory phase, but there should be (tax) measures for households in the final package," a government source said, referring to a 2014-2015 budget plan. The prospects of tax breaks will raise new questions over whether France can fulfil a promise of bringing its public deficit down below an EU target of three percent of output from a forecast 3.6 percent this year. Hollande's government will around mid-April submit a new deficit-reduction plan to the European Commission, which is in charge of policing members' efforts to meet EU deficit rules. Taxes rose during Hollande's first 22 months in power as he sought to shrink the deficit, helping to drag his approval scores to record lows while frustration grew over his failure to bring down unemployment above 10 percent. With turnout at a record low, Socialist candidates won just 38 percent of the national vote in the election at the weekend, behind 47 percent for the opposition conservatives. In response to his party's poor showing the president said that he was ready to "act" in April and would consider changing tax policy, a source close to the president said, amid growing talk of a cabinet reshuffle. (Reporting By Julien Ponthus; Writing by Nicholas Vinocur; editing by Mark John)