Autumn promises to be particularly hot. Between the energy crisis and the war in Ukraine, the government is moving through minefield to prepare its next budget for 2023. To a few weeks before the presentation of the finance bill (PLF 2023) scheduled for September 26, the Minister of the Economy Bruno Le Maire and that of the Budget Gabriel Attal presented optimistic macroeconomic forecasts for next year during a meeting with journalists this Tuesday, September 13.
“We are in an economic situation marked by strong tensions linked to the continuation of the war in Ukraine, inflation and the economic fragility of our trading partners. In this tense context, the French economy is resisting […] This resilience leads us to maintain positive growth at 1% in 2023,” declared the Minister of the Economy, who does not want give in to catastrophism ».
As a reminder, the executive was counting on a 1.4% increase in GDP in its stability program sent to Brussels at the end of July following several months of delay. Across the Rhine, the German economy, heavily dependent on Russian energy, plunged straight into recession six months following the start of the war in Ukraine.
The Banque de France is due to unveil its latest forecasts next Thursday, but its governor François Villeroy de Galhau has not ruled out the dark scenario of a recession. For its part, INSEE has revised its growth forecasts for 2022 slightly upwards in favor of a better than expected second quarter, but the end of the year might take a turn for the worse. A total shutdown of the Russian gas tap might propel the energy price index to dizzying heights following an already record year 2022.
Structurally higher inflation
On the inflation front, the general management of the treasury now expects inflation to be 4.2% in 2023 once morest 5.3% in 2022. The government has revised its inflation forecasts upwards by 0.3 points for this year compared to the July stability programme. “Inflation is very high right now. There is a transmission from wholesale to retail prices,” declared Bruno Le Maire. “We are entering a new economic era, it is that of structurally higher inflation”, he added.
In particular, the Minister referred to the role of relocations in driving up costs and higher energy prices in the future. After having slowed slightly in August, the consumer price index might accelerate once more at the end of the year, according to the latest INSEE forecasts, to reach 6.6% year on year.
A deficit of 5% of GDP in 2023
Regarding the public deficit, it should reach 5% of GDP in 2023 at the same level as in 2022 and 6.4% in 2021. “The abolition of the contribution on the added value of companies (CVAE), spread over two years, the stronger than expected corporate tax revenues should make it possible to have higher tax revenues”, explained Gabriel Attal to journalists. Until last July, Bercy was counting on 52 billion euros in corporate tax revenue in 2023 once morest 55 billion euros now thanks to a more favorable increase in activity than anticipated. Regarding taxation, “the Court of Auditors and the budget rapporteur Jean-René Cazeneuve encouraged us to delay the tax cuts”continued Gabriel Attal.
On the debt side, Bruno Le Maire did not provide a precise figure during his press briefing. “The restoration of public finances is not negotiable. The objective is to achieve a reduction in public debt in 2026 and to bring the deficit below 3% in 2027. This trajectory will be achieved thanks to growth and lower taxes”, he explained.
Tariff shield, tax on superprofits, production taxes: the hot issues of the 2023 budget
Potentially explosive files are piling up on the desk of the Minister in charge of Public Accounts. The tariff shield for businesses and households might be extended in 2023. According to a recent estimate by Bercy, this device has already cost 24 billion euros since 2021, or around 1 point of gross domestic product (GDP). In detail, 10.5 billion euros have already been spent on electricity, 6 billion euros for gas and 7.5 billion euros for the rebate on fuel. On the business side, the profits made by a few energy and transport behemoths have revived debates on corporate taxation. The conclusions of the flash mission currently being carried out in the National Assembly on the superprofits might put oil in the wheels of the opposition.
Finally, the reversal of the government on production taxes is likely to give rise to numerous passes of arms. After having promised an abolition of the contribution on the added value of companies (CVAE) in one go, the Minister of the Economy has backtracked by spreading this abolition over two years. Unsurprisingly, part of the employers through the voice of the METI (Movement of medium-sized enterprises) reacted immediately. ” For the PUTit would be a mistake to add to the current crisis a bad signal in terms of structural reforms of competitiveness”, the organization said in a statement.
A Parliament ready to cross swords
Unlike the previous five-year term, the government is not in a strong position in the National Assembly. After the start of the school year, several opposition groups have already indicated that they will not vote for the next budget. In this context, the government has started a series of meetings at the Ministry of Finance, entitled the “Bercy Dialogues”, with the various opposition group members since Tuesday, September 13. About fifty parliamentarians were present for this first meeting devoted to purchasing power and the macroeconomic framework.
During a meeting with the association of journalists from the presidential press on Monday evening, the President of the Republic, Emmanuel Macron did not rule out recourse to article 49-3 of the Constitution, which allows the adoption of a text without vote, except motion of censure. In the event of “generalized obstruction”, he will have, he assures, “no state of mind to use” this constitutional weapon according to comments reported by Agence France Presse (AFP). The standoff with the opposition promises to be tense.
