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France facing 'one of worst deficits' in its history: Minister

Deficit is expected to reach 5.6% or more of national output this year

Published: Tue 24 Sep 2024, 5:00 PM

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  • AFP

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Newly-appointed French Economy, Finance and Industry Minister Antoine Armand leaves the Hotel de Matignon after a government meeting with the Prime Minister in Paris on Monday. — Reuters

Newly-appointed French Economy, Finance and Industry Minister Antoine Armand leaves the Hotel de Matignon after a government meeting with the Prime Minister in Paris on Monday. — Reuters

France now has “one of the worst” public deficits in its modern history, the newly-installed finance minister said Tuesday, confirming new taxes on the wealthy and big businesses are on the table to get finances back in order.

Antoine Armand added that he would be talking to economic actors including unions and bosses’ organisations in a bid to slash government overspending.

The deficit is expected to reach 5.6 per cent or more of national output this year — almost double the European Union limit.

“Apart from one or two one-off crisis years in the past 50 (years), we have one of the worst deficits in our history,” Armand told broadcaster France Inter.

“On that level, the situation is grave.”

The new government under conservative Prime Minister Michel Barnier faces a parliamentary gauntlet in the coming months.

Ministers must try to get a 2025 budget with steps to repair public finances through the National Assembly lower house, divided roughly into three after July’s inconclusive snap election.

Barnier can count on support from conservatives and President Emmanuel Macron’s much-reduced camp, but the NFP left alliance and the far-right National Rally (RN) could topple the government at any time in a confidence vote if they join forces.

In a Sunday interview, the prime minister brought “targeted” tax rises on “wealthy people or some large companies” into play as part of a plan to right the ship.

Barnier is expected to present his draft budget early next month, an unprecedented delay from the usual October 1 deadline after Macron took all summer to name a new government chief.

Increasing levies is a departure from policy under seven years of Macron-led governments, which sought to stoke activity by reducing taxes on companies, housing and wealth among others.

The tax take was reduced by around two per centage points of GDP, to 43.2 per cent, between Macron’s first election in 2017 and 2023, according to national statistics agency INSEE.

“It’s been seven years of not wanting to increase taxes. That can make sense, but you have to cover it by making an effort to reduce spending... otherwise you blow up the deficit,” said Thomas Philippon, an economist and professor at New York University who advises the French government.

Patrick Martin, head of bosses’ federation Medef, has said he is “open to discussion” about tax rises — as long as the state makes a “much greater effort than what it asks” of companies.

Barnier was to meet Martin and the moderate CFDT union on Tuesday afternoon.

“My job is to make sure that any potential taxes that will exist do not hobble our growth, do not hobble job creation,” Armand said.

“We will not place a heavier tax burden on working people, people who belong to the middle class,” he added.

By contrast, “people with very large wealth, who by the way sometimes don’t pay much in tax... can they contribute more in our present situation?” Armand suggested.



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