France /
France’s new government is studying options to raise taxes on the wealthy and corporations in an effort to reduce growing deficits, without undermining the president’s record Emmanuel Macron of reforms in favor of businesses.
The Minister of Finance, Antoine Armanda little-known member of Macron’s centrist party before being appointed to the prime minister’s cabinet Michel Barniersaid decisive action was needed to tackle “one of the worst deficits in our history” outside of exceptional crises such as the pandemic. “We will work to be equal to the gravity of the situation,” he told France Inter radio. “Targeted levies for the richest households are being studied and are being considered for companies.”
He added that “perhaps people with very significant assets, who sometimes do not pay much tax, can contribute more.”
Armand and the new Budget Minister, Laurent Saint-Martinoutline possible tax increases to present to Barnier in preparation for the 2025 budget due to be presented to parliament next month. This will be Barnier’s first major political test because opposition parties are threatening no-confidence motions against his fledgling government if they do not agree on spending and tax choices.
The tax hike will be a major break from Macron’s economic policy since he was first elected in 2017 of cutting taxes on businesses and households, which he presents as key to boosting growth and greater investment.
But successive Macron governments have paid less attention to reining in spending, betting that stronger growth would naturally boost tax revenues. While the strategy has yielded results in terms of reducing unemployment and persuading businesses to invest, a lack of fiscal discipline has led to wide deficits.
Brussels placed France in what is known as an excessive deficit procedure and required it to present a plan to reduce deficits in the coming years. The agencies downgraded the country’s rating, while its borrowing costs rose.
The deficit is expected to reach at least 5.6 percent of GDP in 2024, above the 5.1 percent target for the year, and exceeding the 5.5 percent level from 2023.
French borrowing costs converged with Spain’s for the first time since the 2008 financial crisis as investors worried about France’s ability to close its budget deficit.
Armand has expressed opposition to raising taxes on “workers and the middle class.” But his administration has so far sidestepped questions about what it defines as the middle class or the wealthy, leaving it unclear who the new taxes will target.
He also stressed that any tax increases must not “slow down growth or job creation,” a sign that Barnier’s government will at least try to stick to Macron’s economic policies.
Analysts of Goldman Sachs They noted that the tax burden in France “is already one of the highest among its peers, leaving little room for further increases.”
“We expect the policy mix to be tilted towards spending reduction, although Prime Minister Barnier has signalled an openness to relying on some revenue-raising measures,” the analysts wrote.
Economists suggest a number of possible cuts that would hit businesses, including reducing generous subsidies to employers who hire apprentices or those given to companies that carry out research and development.
The sensitive question of whether France should reinstate a wealth tax, which Macron abolished and replaced with a property tax, also resurfaced amid calls from left-wing parties to force the wealthy to contribute more to public coffers.
Barnier said over the weekend that an “exceptional contribution” could be asked from “the richest” and “large multinational companies that can contribute to the national recovery effort.”
Business executives in France are beginning to sense that the wind is shifting toward tax increases. Patrick Martinhead of business lobby group Medef, told Le Parisien newspaper on Tuesday that he is “ready to discuss corporate tax increases.” However, he also warned the government that any increase should not come before a real effort to cut public spending.
