AENVIRONMENT market turmoil in Britain and political uncertainty in Italy, France looks like an oasis of relative stability. On September 26, Bruno Le Maire, the Minister of Finance, unveiled the government’s budget for 2023, which was broadly in line with the previous ones. It was his sixth; Indeed, Mr. Le Maire now holds the record for the longest period consecutive to the mandate of a Minister of Finance under the Fifth French Republic. Such consistency will not, however, spare France a difficult autumn, nor a meticulous examination of its public finances.
The budget emphasizes protecting the French against soaring energy prices. France will spend 45 billion euros ($43 billion) next year on public subsidies to cut energy costs. Already this year, the government has frozen gas prices and capped electricity price increases at 4%. In 2023, this ceiling will increase by an additional 15% for gas and electricity bills. Direct subsidies for gasoline at the pump will end, with aid becoming more targeted to those in need. There will be extra help for people on low incomes, as well as tax changes costing €6.2 billion designed to help poorer households.
Mr. Mayor has not done everything he had on his list. Aware of the deficit, he postponed the reduction in inheritance tax. A slight decrease in business taxes was spread over two years. The budget, as he pointed out, still goes “a little too much” to support the use of fossil fuels. But it also marks, according to him, the end of the philosophy of spending no matter what (whatever it takes), which has characterized public spending during the pandemic.
Not everyone agrees. French public finances will remain strained. Next year will see no decline in the expected budget deficit, which will remain at 5% of GDPi.e. 159 billion euros, the same level as in 2022. Public debt will remain at an alarming level of 111% of GDP. MEDEF, a business lobby, criticized the budget for a “lack of ambition” on public spending. Mr Le Maire has promised to reduce the deficit to 3%, in line with euro zone rules, but not before 2027. The current deficit level puts France closer to Spain than to Germany.
It is uncertain whether the government will achieve its own target next year. Public spending could turn out to be underestimated, the official public finance watchdog warned this week. The government’s growth forecast for 2023 of 1% could also turn out to be optimistic. So far, the French economy has been robust. Yet inflationary pressures on businesses and slowing growth elsewhere will mitigate it. The Banque de France expects growth in 2023 to reach 0.8% at best.
Ultimately, says Mujtaba Rahman of Eurasia Group, a political risk consultancy, deficit reduction “cannot be achieved without pension reform.” France spends about 14% of GDP on public pensions, compared to OECD average of 8%. The European Commission, which has suspended its fiscal rules for now, is closely monitoring signs that France is serious about reining in public spending. During his re-election campaign, President Emmanuel Macron promised to raise the retirement age from 62 to 64 or 65. He then lost his parliamentary majority, so this commitment seems difficult to keep. If he tries to impose it, the opposition and the unions will take to the streets. If he delays the plan for even more talks, he risks losing his credibility as a reformer. ■
