2024-10-01 17:35:48
The destination is displayed, but the path to get there is still marked with dotted lines. During his general policy speech this Tuesday, Prime Minister Michel Barnier gave himself a rather ambitious budgetary roadmap in view of the situation of public finances which he inherits, however still keeping gray areas on the levers that he was going to act to achieve his goal.
“Our desire is to reduce the deficit to 5% of GDP in 2025,” assumed the new tenant of Matignon, while the finance bill for next year must be unveiled next week. This is a first step towards bringing French public accounts into compliance with European rules. But it will take longer than expected: Michel Barnier abandons the objective of a deficit of 3% in 2027, and is now aiming for 2029. That is to say more than ten years after the last year (2018) for which French public finances were in compliance to the Maastricht rules.
A massive effort in 2025
In itself, this target of 5% next year will not be seen as particularly ambitious by our European partners or investors. This represents more or less the level that was expected in 2023 (-4.9%) before the bad news on tax revenues hit Bercy in recent months.
However, managing to reduce the deficit to this level would represent a good performance given the situation of the public accounts. This is the top of the range that has been discussed for several days in the corridors of power. “This year, our public deficit should exceed 6% of our national wealth. In 2025, if nothing was done, it would be even higher,” explained Michel Barnier, while the latest forecasts are -6.2% for this year. The effort therefore promises to be massive, of the order of more than 40 billion euros.
Tax on the richest
How will this effort be distributed? The Prime Minister decided: two-thirds savings in spending, one-third new revenue. The cocktail is not surprising. A similar dosage was proposed by the economist Jean Pisani-Ferry in an interview with “Echos” at the end of August. On the other hand, Michel Barnier did not give the list of ingredients. And this will be decisive since we are talking, among the masses, of around thirty billion euros of cuts to be made next year in the budget of the State, local authorities and Social Security, to around fifteen billion euros in new taxes.
On the tax side, the Prime Minister confirmed that he would ask for a “limited time” effort from large companies and the wealthiest French people. Without dwelling on the subject, Michel Barnier only specified that he wanted to “avoid tax exemption strategies for the largest taxpayers”, which echoes Matignon’s thoughts around a minimum tax rate on the income of the wealthiest.
To spare his right wing, resolutely hostile to any increase in taxes, the Prime Minister stressed that he was aware of their already very high level and convinced of the positive role of the reductions initiated by the presidential camp in recent years. In other words, it is only forced by the budgetary situation that he temporarily turns his back on supply-side policy.
Savings to be specified
Regarding savings, Michel Barnier was even more stingy with details. He just spoke of the “windfall effects” of learning to correct – which, according to a recent study by Bercy could save 1.5 billion euros.
The Prime Minister also mentioned the pooling of certain operators and state agencies with similar objectives such as Business France and Atout France, or even France Stratégie and the High Commission for Planning. And the relocation of certain state services outside the center of Paris. Even if Michel Barnier did not give any figures, we seem far from the desired objective. We will therefore have to wait a little longer to know which ministries and which missions will carry the inevitable blows of the sword.
They will be all the more difficult because, paradoxically, the Prime Minister has mentioned several projects which will be expensive. Michel Barnier notably assured that the military programming law would be properly implemented, which implies an increase in the army budget by more than 3 billion euros in 2025. And he cited other measures (support for farmers facing to the bovine health crisis, construction of prisons, expansion of access to zero-interest loans, etc.) which will require significant public investment. It remains to be clarified how to finance them.
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