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The French government has pledged to cut another €10bn out of this year’s budget as weaker economic growth makes its earlier fiscal plans untenable.
With much of Europe stuck in a period of sluggish growth, the French economy is expected to expand only 1 per cent this year, according to revised government forecasts released on Monday, down from the 1.4 per cent that had been the basis for the 2024 budget.
“Lower growth means lower tax receipts, so the government must spend less,” finance minister Bruno Le Maire said in a news conference announcing the new measures.
The 2024 budget already included roughly €16bn in cuts, mostly from phasing out energy subsidies, but the additional cuts are needed to meet a commitment to reduce the budget deficit to 4.4 per cent this year.
Le Maire promised there would be no tax increases to plug the hole, casting it as a consistent policy choice that President Emmanuel Macron’s government has stuck to since 2017. “We have cut taxes and won’t deviate from this line. French people can’t bear any more tax,” he said.
The moves come as France is under pressure from credit rating agencies and national finance and audit watchdogs to defend its deficit-cutting plan, which is slower than most other EU countries.
Brussels has recently struck a deal on reimposing revised fiscal rules that were suspended because of the pandemic and the war in Ukraine. Analysts expect France to be the least likely of the four biggest eurozone economies to meet the bloc’s new annual targets for cutting public debt and limiting public spending.
Half of the €10bn cuts will come from government ministries, such as spending less on hiring, procurement, travel and offices, while the rest will come from scaling back programmes including subsidies for home renovations to reduce carbon emissions and international aid. Spending on healthcare and local governments will be protected from the cuts, said Le Maire.
A revised budget could be proposed in the summer if more savings are needed.
The deteriorating economic outlook is bad news for Macron who has put boosting growth and lowering chronically high unemployment at the centre of his political agenda since he was first elected in 2017. He has pushed business-friendly reforms, such as raising the retirement age and cutting welfare benefits, while also spending heavily during the pandemic and energy crisis to protect households and companies.
But weak growth reversed the downward trend on unemployment, which ticked up from 7.1 per cent at the end of 2022 to 7.5 per cent at the end of 2023, and public finances have degraded.
Fitch has already downgraded France’s rating, while S&P maintained it in December and will review it again by April. Rating agencies have pointed out that successive French governments have struggled to cut public spending in part because of the public’s resistance to structural reforms.
Macron has often relied on government handouts to quiet unrest and strikes. Earlier this month, the government promised roughly €400mn in concessions to farmers to get them to call off protests that included a threat to blockade the capital.
The government has also raised spending on key priorities such as defence and support to Ukraine to help it combat the full-scale invasion by Russia, including a new €3bn commitment made on Friday. The finance ministry said some of the funds for Ukraine had already been set aside in the budget and the rest would come from trimming other spending lines.
The French military budget has grown 40 per cent in nominal terms to €413bn for 2024-30 compared with the previous seven-year period.
