France’s fiscal situation is “very serious”, Prime Minister Michel Barnier told AFP on Wednesday, saying more information was needed to assess the “exact reality” of French public finances.
France was put under formal proceedings for breaching European Union fiscal rules before Barnier was chosen to head the government this month by President Emmanuel Macron.
And the Bank of France warned this week that a projected return to EU deficit rules by 2027 was “unrealistic”.
France’s public sector deficit is forecast to reach around 5.6% of GDP this year and exceed 6% in 2025, compared with EU rules requiring a three percent ceiling on deficits.
“I am discovering that the country’s fiscal situation is very serious,” Barnier said in a statement to AFP.
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“This situation requires more than pretty statements. It requires responsible action,” he said.
The new prime minister, who has yet to appoint a cabinet, is scheduled to present the 2025 budget to parliament next month in what is expected to be the first major test for the incoming government.
“off topic”
Days after taking office in early September, Barnier said in an interview that “the French want more fairness” when it comes to fiscal policy, while several politicians said the prime minister had mentioned possible tax increases in private talks.
Such a move would be a red flag for allies of Macron, who has overseen cuts in the corporate tax rate from 33.3 percent to 25 percent as well as tax cuts for households, including the wealthiest taxpayers.
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Macron has claimed to cut the overall tax burden by 50 billion euros ($56 billion) since becoming president in 2017.
Interior Minister Gérald Darmanin, a staunch Macron ally, said on Wednesday he was “ruled out” of joining, or even supporting, a government that raised taxes.
But years of extra spending during the Covid pandemic combined with subdued growth have caused the French deficit to balloon, triggering the EU’s “excessive deficit procedure”, which is designed to force a country to negotiate a plan with Brussels to get its deficit or debt levels back on track.
Finance Minister Bruno Le Maire, who is due to be replaced soon, has promised to bring the deficit back below 3% by 2027, but many analysts have dismissed the plan as unlikely.
France’s central bank governor Francois Villeroy de Galhau said this week that the target was not “realistic” unless the government was willing to risk “stopping growth in its tracks”.
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Apparently supporting Barnier’s approach, Villeroy de Galhau called for an “extraordinary and reasonable effort called for by some big companies and wealthy taxpayers” to help recover the economy. France, he said, could no longer afford “unfunded” tax cuts.
But tighter fiscal policies could put Barnier on a collision course with Macron, who appointed the veteran politician — best known internationally as the EU’s former chief Brexit negotiator — in the hope he can survive a early vote of no confidence in parliament.
“Terrible mistake to go back”
“We want a stable fiscal policy that does not undermine the policies that have reduced unemployment and increased the attractiveness of our country,” said Jean-René Cazeneuve, a member of the National Assembly and a Macron ally. “It would be a terrible mistake to go back to that.”
Laurent Wauquiez, head of the conservative Les Republicans (LR) parliamentary group on which Barnier will depend for support, said last week that “our belief is that in some areas we need right-wing policies”. That, he said, meant “no tax increase.”
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The tax issue is likely to deepen brewing tensions between Macron and Barnier, who is said to have been irritated that the president did not consult him on the appointment of Foreign Minister Stéphane Céjourn to the European Commission.
“Knowing Michel Barnier’s position on Europe and the loss of French influence, I think he has just suffered his first humiliation,” said an LR MP on condition of anonymity.
Source: AFP