Emmanuel Macron’s government outlined a plan to accelerate debt reduction that would require the state to make unpopular cost savings, just as the embattled French leader tries to turn the page on his unpopular pension reform.
(Bloomberg) — Emmanuel Macron’s government outlined a plan to accelerate debt reduction that would require the state to make unpopular cost savings, just as the embattled French leader tries to turn the page on his unpopular pension reform.
Budget deficits will be narrower than previously predicted in the coming years, according to the five-year public finance program, with the aim of bringing the gap below 3% of gross domestic product by the end of the president’s second term.
Debt will stand at 108.3% of GDP in 2027, compared with a forecast of 112.5% made last year, according to the plan published on Thursday.
“We would rather accelerate debt reduction today than raise taxes tomorrow,” French Finance Minister Bruno Le Maire said at a news conference. “Cutting debt means freedom.”
France is facing growing headwinds to repairing public finances from massive spending during the energy crisis and the Covid pandemic. Prospects for economic growth have declined to only 1% this year since the government last made a long-term plan for spending, while the costs of servicing debt are set to rise sharply after the European Central Bank increased interest rates to tackle surging inflation.
While Macron’s pension reform should give a boost to public finances, raising the minimum retirement age by two years has made him deeply unpopular and strengthened opposition parties who reject budget cuts.
Still, the French government has a better starting point to tackle the budget deficit than previously expected as resilient economic growth last year and strong corporate tax receipts helped bring the budget deficit below the target of 5% of GDP to 4.7%.
Le Maire said a key plank of the debt-reduction strategy will be boosting output: labor reforms including the pension overhaul are expected to spur job creation, while tax cuts would further fuel activity.
He added that the cost of servicing debt will become one of the biggest sources of spending in 2027, reaching €70 billion a year.
The finance minister said it’s imperative to rebuild room for maneuver in case the country has to face another economic shock and that it is fair for all parts of the state to contribute, given people are being asked to work longer.
The government will announce details in the coming months to ensure spending rises more slowly than inflation. The central state would bear the greatest burden for making savings. In a theoretical exercise, ministries have been asked to look at how they could cut spending by 5%.
French Budget Minister Gabriel Attal said public spending will decline to 53.5% of GDP in 2027 from 57.5% last year.
Winding down measures to protect households and businesses from the spike in energy prices will also be a source of savings, Le Maire said.
(Updates with comments from ministers starting in eighth paragraph.)
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