France’s Macron Seeks Credibility With Budget Balancing Act

The French government will present a budget on Monday that aims to renew Emmanuel Macron’s fiscal credibility despite extra spending to cushion energy price shocks and a challenge from a valiant opposition in parliament.

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(Bloomberg) — The French government will present a budget on Monday that aims to renew Emmanuel Macron’s fiscal credibility despite extra spending to cushion energy price shocks and the challenge of emboldened opposition in parliament. 

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After heavy spending during the Covid pandemic, the president has built an economic plan for his second five-year term based on containing the deficit below 5% of economic output next year and below the 3% ceiling of the European Union in 2027.

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However, balancing taxes and spending is becoming difficult as the economic outlook worsens and the cost of capping electricity and natural gas prices increases. The government has already earmarked another 16 billion euros ($15.6 billion) in the 2023 budget to prevent bills from rising more than 15 percent.

The budget will sacrifice some of Macron’s pro-business plans by delaying tax cuts to preserve government revenue and keep the deficit target in sight. Speaking last week before the tax plans were formally presented to cabinet, Jean-Rene Cazeneuve, a senior member of the National Assembly’s finance committee, said the target “is a red line we must not cross” .

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In addition to the financial challenges, there is greater political risk surrounding the 2023 budget after Macron lost his absolute majority in parliament in June elections. Unless the government has the support of some opposition lawmakers, Prime Minister Elisabeth Borne would likely have to use an article in the constitution, called 49.3, that allows bills to be passed without a vote. The price would be to expose his government to the risk of being overthrown in a vote of confidence.

In an interview with French newspaper JDD on Sunday, Budget Minister Gabriel Attal said opposition parties were unlikely to support the budget as a matter of principle, leaving little doubt about the parliamentary outcome.

“The oppositions themselves have said 49.3 is likely,” Attal said. “Whatever happens, France cannot do without a budget.”

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Other key points of the interview with the budget minister:

  • Budget will limit gas and electricity price rises to 15% instead of 120% without measures
  • French public debt to rise above 3 trillion euros “in the coming weeks”
  • Debt servicing will cost France 51.7 billion euros by 2023
  • Macron’s government aims to cut spending from 57.6% of GDP to 53.8% by 2027
  • Central government spending to fall by 2.6% in volume in 2023 as stimulus measures end, government looks at cracking down on social security fraud and health savings
  • The Government foresees a budget of 2.5 billion euros in 2023 for housing reforms to improve energy efficiency

The divisions could widen further if the government includes an amendment to raise the retirement age in the social security chapter of the budget instead of negotiating reform with unions and opposition parties. Ministers said last week that Macron could still choose that path.

There are also economic risks, as the budget balance assumes 1% growth next year, an increasingly uncertain base case. Economists expect just 0.5%, which is also the Bank of France’s “reference scenario”. If the economy is weaker than the government expects, the budget would need to be revised more rigorously to meet the deficit target.



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