While Prime Minister Élisabeth Borne swept away, in an interview with France bleu, the trail of an increase in household taxes and while President Macron asked, during the Council of Ministers back to school, this Wednesday, to his troops, not to “Let the little music rise on the tax hike”, Christian de Boissieu, vice-president of the Circle of economists and professor emeritus of economics at the University of Paris 1 Panthéon-Sorbonne, explains to us why the government must give a strong signal to reduce public deficits, without affecting ” ocean liners” which are the “great taxes”. Interview.
Deficit reduction is an absolute imperative?
Yes, I am talking regarding public deficits, in the European sense, which include that of the State, communities and Social Security, which reached 4.9% of GDP. We have to give a signal to Europe, show that we are regaining control because our neighbors will not give us gifts. It is also a signal to the rating agencies, which following the degradation carried out by Fitch Ratings will publish new ratings in October. A further drop would be detrimental to the rates at which France borrows and to its image. Finally, it is in our interest to control our debt which, at 3,000 billion euros, exceeds 110% of annual GDP with charges which are increasing given the rise in interest rates.
Isn’t there a risk of recession if the state cuts its spending?
If the direction must be that of the signal of reduction of the deficits, the question of the speed at which the government must go is discussed, in a context where credit is slowing down and where the real estate crisis has begun. We must not go too fast towards 3% (of GDP, editor’s note). There are a lot of uncertainties regarding growth in the world, with the Chinese slowdown, energy prices that remain high… We cannot count on growth to solve all our problems. However, a certain number of expenses are unavoidable. With the rise in rates, debt charges for communities and the State are increasing, we might reach 50 billion euros or even more this year once morest 35 billion in some years. Then with the war in Ukraine, defense spending is on the rise and finally we have to finance the energy and ecological transition.
Remains the track of the increase in certain taxes?
The State may reduce certain other expenses; this is what the government is trying to do by evoking the hunt for waste in health insurance or by refocusing certain housing aids. He also announces new taxes, without touching the big taxes because they are difficult to move liners so he works on the margins. Transport Minister Clément Beaune has indicated, for example, that the increase in taxes on motorway companies would have no impact on toll rates. But we are in a market economy, there can be second and third round effects, with an impact on the prices paid by consumers. The border between taxes and duties is quite arbitrary and rather cosmetic and it is complicated to claim that this will not affect the purchasing power of households.
Christian de Boissieu.Photo DR.
Patterns upwind
The traditional Meeting of entrepreneurs in France, the Medef summer university, on August 28 and 29, promises to be hectic. The bosses see the threat of having to pay a little longer the contribution on the added value of companies (CVAE) approaching. The 8 billion euros it represents were initially to be erased in two years, in 2023 and 2024. But ultimately the elimination of the remaining 4 billion might be spread over 4 years. Medef President Patrick Martin is already pointing out the “reliability of the word of the state”.
And the CPME, in a press release, urges the government “not to give in to the sirens of easyness by increasing the taxes that weigh on companies, at the risk of breaking the current dynamic of job creation”. And is worried regarding another measure, which would consist of leaving the companies responsible for the daily social security allowances (IJSS) for the 4th to 7th day of sick leave for their employees. That is an estimated cost for SMEs of €1.4 billion.
