After the binge, the bill? The new French government of Michel Barnier presented the main lines of its proposed 2025 budget on Thursday evening, promising to cut public spending by £50 billion while raising taxes across the board. It’s belated austerity for a state with a fiscal policy that has previously resembled dine and dash.
The intention is to reduce the deficit to 5 per cent of GDP next year, before trying to go below 3 per cent in 2029. Meanwhile, France’s debt of 3.3 trillion Euros will increase.
This is a punishment beating for the most successful and productive companies and individuals in France
Like one of those mille feuille pastries, there are layers of irony to this. The centrists now trying to cure the financial crisis are largely the exact same people who created it. These are the myrmidons of President Macron, the ‘Mozart of finance,’ who presided over a trillion Euro increase in the country’s debt since he was first elected in 2017. And the only likely way they might be able to even start addressing the problem is with the consent of Marine Le Pen, his long-standing enemy, and her decisive block of 126 deputies in the fractured National Assembly.
Barnier has claimed his ‘exceptional measures’ will revive the economy by controlling public spending and raising taxes, which are already the highest in the OECD. It is ‘a necessary, shared and targeted effort,’ according to government spokeswoman Maud Bregeon. And incidentally a punishment beating for the most successful and productive companies and individuals in France. Reviving the economy by punishing its most productive companies is going to be quite tricky.
We’ll see how this lands. Barnier doesn’t have a parliamentary majority. It’s not impossible that he’ll have to force it past the National Assembly by decree, defying deputies to bring down the government and provoke new chaos. The left is not happy. Barnier admits that many details are open to negotiation. The Assembly will debate the budget until Christmas and it’s likely to be explosive.
Some of the measures seem farcical. The pledge to eliminate 2,201 civil servants seems a suspiciously precise number. With 5.5 million functionaries in France, that’s only 0.04 per cent of the civil service headcount. Mort de rire, dying of laughter, as they say here.
France has a fabulous health service, but patients are going to have to pay higher contributions to access it. That’s supposed to raise €4 billion.
A cut of €500 million to the budget of the Ministry of Justice is unlikely to reassure voters infuriated by a breakdown in law and order. Parents will not be pleased by 4,000 fewer teachers. The 450 largest local authorities are being told to cut €5 billion.
And to cap it all, tax increases for everyone, not just the rich. The 65,000 wealthiest households will have to pay an exceptional contribution for three years. Goldman Sachs bankers lured to Paris by Macron will be having second thoughts. Electricity tax will be drastically raised, taxes on almost all new gasoline and diesel vehicles will be raised and airplane ticket tax will be doubled with a special levy on private jets. There’s even to be an increase in VAT on gas boilers – a nod to the cult of net zero.
The 400 companies with a turnover exceeding €1 billion will be subject to a profit tax surcharge, which will apply in 2024 and 2025. The finance ministry claims, improbably, this should bring in €8 billion per year.
Invest in France? All companies will pay more payroll taxes, which already amount to more than 50 per cent of the wage bill. That’s unlikely to stimulate employment or inward investment. This measure, it is claimed, will bring in about €5 billion. Aid for the hiring of apprentices is to be reduced by €1.2 billion, with a possible decrease in the hiring bonus, which could go from the current €6,000 to €4,500.
France’s 17 million retirees will have to tighten their belts due to the shift in the revaluation of retirement pensions. Expected savings: €3.6 billion.
Notably not to be cut are subsidies to the media, and the tax privileges of journalists. This morning the media was relatively polite.
Note also that entirely exempted from austerity are the Elysée, the National Assembly and the Senate – which will see their appropriations continue to rise for 2025. This was identified in the budget annexes, before their disappearance from the government website.
The presidential palace is asking for a boost of €3.1 million. And a little more than €10 million will be granted to the National Assembly and €6.3 million to the Senate.
Like the dog that didn’t bark, Marine Le Pen has been rather quiet in recent hours. It seems likely that the only way anything resembling this budget could pass would be with her consent, but she will demand a price. The odds that she will succeed Macron can only have shortened.
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