Defeating tax taboo is scary task for French PM
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Pierre Briancon
BERLIN, Sept 19 (Reuters Breakingviews) -Newly appointed Prime Minister Michel Barnier has warned that France’s financial situation is “extremely dire”. But he has precious few tools to tackle the country’s ever-rising budget deficit and reduce its debt load, now at more than 110% of GDP. The man who appointed him, President Emmanuel Macron, is not helping. Barnier can’t rely on spending cuts alone to shrink a deficit that’s close to 6% of GDP. But the parties who support him in parliament, as well as the man in the Élysée, oppose higher taxes. The premier’s tenure will be eventful, and possibly short-lived.
Macron is intent on preserving his legacy of tax cuts, and his own party, the shrunken Renaissance, agrees with him. According to a study by a former French budget czar, the country’s public debt has increased by 1 trillion euros under Macron, to about 3.2 trillion euros, and nearly a quarter of that increase is due to the president’s tax cuts.
After France’s deficit shot up to 5.5% of GDP in 2023, and 5.6% this year, a previous target of getting under the 3% of GDP mandated by the European Union in 2027 is now out of reach, and Paris is under Brussels supervision. Barnier’s priority is to cut France’s primary deficit – the balance of spending and revenue excluding interest payments, which is now at more than 3% of GDP.
A recent note by the Council of Economic Analysis, a government advisory body, notes that a brutal adjustment in the primary deficit – in the order of 112 billion euros – would damage the country’s growth prospects. It advocates a more gradual path, starting with a deficit reduction of 20 billion euros next year, or almost 0.9% of GDP, as the first step in a multi-year adjustment programme. But relying only on spending cuts would still hit the economy, reducing the tax take and increasing the risk of a spike in the deficit.
Barnier could start by ending the many tax rebates created by his predecessors over the years – at times for economic reasons, often under the pressure from various lobbies. With some semantic acrobatics, he could even argue that this would not amount to tax rises.
But he will have to take on the president who appointed him, and the parties who seem ready to give him the benefit of the doubt for now, including the far-right Front National. That is not a recipe for political longevity.
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CONTEXT NEWS
French Prime Minister Michel Barnier said on Sept. 18 that he had found France’s budget situation “extremely dire”. Barnier, who was appointed by President Emmanuel Macron on Sept. 5, added that he was seeking further information to establish “the exact reality” of the country’s finances.
Francois Villeroy de Galhau, the governor of the French central bank, said in a radio interview on Sept. 18 that tax hikes should be part of any deficit reduction plan, especially if they target wealthy taxpayers and large companies.
Graphic: Public debt of France, Germany and Italy since financial crisis https://reut.rs/4eotpy5
Editing by Francesco Guerrera and Oliver Taslic
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