World Economy

France Budget to Cut Deficits

France Budget to Cut DeficitsFrance Budget to Cut Deficits

French President Emmanuel Macron’s government is set to unveil its first annual budget on Wednesday, balancing tricky priorities as it seeks to cut taxes while also slashing the deficit.

The young centrist president has pledged to find €16 billion ($18.9 billion) of savings next year, seeing cutting the deficit as key to boosting France’s credibility in Europe as he eyes a shake-up of the European Union, AFP reported.

France is one of the few remaining nations in the EU’s bad books for spending beyond the bloc’s deficit limit of 3% of gross domestic product. Macron wants the deficit to come in lower than that in 2018 for the first time in a decade.

But the former investment banker is also eyeing tax cuts for companies and families worth a total €10 billion, leaving his government with less cash to make up the balance.

“Its ambitions are three-fold: considerable tax cuts, higher spending in certain sectors, and bringing down the deficit,” said Alain Trannoy, head of research at the School for Advanced Studies in the Social Sciences.  “That inevitably creates a tension.”

Prime Minister Edouard Philippe has warned there will be tough choices, saying last month that he was “not here to be nice”.

An interim budget for 2017 finalized in July included cuts to housing subsidies and defense spending which sparked a backlash from left-wingers in parliament and the head of the armed forces.

Social security is set to see a €5.5 billion cut next year, according to a source close to budget preparations, while nearly 1,600 civil service jobs will be axed.

In better news for many families, some 80% will see their household tax scrapped in a move the government hopes will increase the spending power of consumers.

Macron came to power in May promising to make France a more attractive destination for investment, starting his presidency by pushing through reforms to the country’s famously complex labor laws.

  Cut in Corporate Tax

“France suffers from two ills: a lack of attractiveness and a lack of competitiveness,” said Geoffroy Roux de Bezieux, vice president of business lobby Medef. The budget “essentially responds to the first problem”, he said.

Macron’s Socialist predecessor Francois Hollande had already pledged to bring down corporate tax from the current 33.3% to 28% by 2020.

The new president plans to cut this again to 25% by 2022 as he seeks to cast off France’s reputation for being a difficult place to do business.

Despite the tax cuts, the budgets of several ministries are set to go up in 2018—notably that of defense, after the armed forces chief quit in a blazing row this summer over Macron’s plans to slash military spending.

People with diesel cars meanwhile face a 10% tax rise to 7.6 US cents a liter as his government seeks a greener economy.

The environment was at the center of a €57 billion investment fund unveiled Monday which includes cash incentives for drivers to trade in heavily polluting cars.

France is forecast to see economic growth of 1.7% this year, but Macron has vowed to make a priority of lowering unemployment stuck at around 9.5%—about twice that of Britain or Germany.

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