2024-09-03 05:31:30
While the outgoing government’s target for a deficit of 5.1% of GDP in 2024 is already too high, forecasts suggest that without corrective interventions (i.e. savings and austerity measures), this figure could reach 5.6%. The news raises questions about the budget stabilization targets set by the government and especially by the European Union.
Bessie Alert: Growth revised downward, tax revenues plummet
The current economic situation is not optimistic. As the newspapers revealed Les Echos On Monday, September 2, 2024, the Ministry of Economy now expects economic growth of only 1.1% in 2024 and 2025, down from an initial forecast of 1.4%.
This downward revision further complicates the budget equation, with tax revenues falling short of expectations, particularly from VAT, income tax and corporate taxes. Falling revenues increase pressure on public finances, with the prospect of the deficit exceeding even 5.6% of GDP becoming increasingly likely.
Rising public deficits: local authorities’ fault?
Another factor worrying the resigning government is the sharp fall in local authority finances, which alone could add €16 billion to public accounts by 2024. The rapid increase in local spending has placed an additional burden on the already weak national budget.
Nevertheless, Bercy recalled that he proposed a draft revision of the Financial Law (PLFR) in early 2024 that included a binding mechanism for local authorities. Les Echos. This mechanism, rejected by Emmanuel Macron, provides for a reduction in the General Operating Allocation (DGF) in the absence of savings. Rejecting the measure is now seen as a missed opportunity to restore public finances.
What steps can the government take to correct the state of France’s public finances?
The next prime minister, Emmanuel Macron, was slow to be appointed and has the onerous task of dealing with this critical situation, having to raise around 15 billion euros to restore the deficit to the target of 5.1% by 2024. The austerity measures announced now seem inevitable and are likely to weigh on households as the government appears to reject any option of raising taxes on the wealthiest.
To achieve this, several options are being considered: a tax on energy company pensions and share buybacks could bring in 3 billion euros in revenue by 2024. In addition, the outgoing government has frozen 16.7 billion euros in credit, which the next government will have to decide on partially or completely canceling. However, even with these measures, the final deficit could be between 5.1% and 5.6%, according to a source within the executive cited by Les Echos.
Deficit: France is heading straight for European sanctions
The risk of a deficit exceeding 5.6% in 2024 is particularly worrying in the context of the EU Stability Pact. The agreement requires member states to keep deficits below 3% of GDP, a threshold that France could significantly exceed if corrective measures are not taken quickly.
Such a decline could lead to sanctions from the European Union, further complicating the country’s economic situation. In addition, the EU is closely watching France’s situation on this issue and is ready to take action.
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