French government plans to raise fiscal deficit target for 2024
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According to the French financial daily “Echo”, due to the rapid deterioration of the fiscal situation, the French Ministry of Finance plans to raise the deficit target in 2024 to the equivalent of 5%-5.1% of gross domestic product (GDP), higher than the original target. 4.4%. France’s deficit target for 2025 was also raised to 4.1%, higher than the previous 3.7%.
According to reports, French President Emmanuel Macron and Bruno Le Maire, Minister of Economy, Finance and Industry, and Digital Sovereignty, have different opinions on this issue. Le Maire advocates deeper budget cuts in order to Get the country’s finances back on track. The new target calls for an additional 10 billion euros in spending cuts, on top of the 10 billion euros ($10.85 billion) announced in February.
Les Echos cited anonymous government sources as saying the government was considering further cuts in government spending, possibly increasing taxes on energy company profits and cutting some social security spending, especially health insurance.
According to foreign media reports, the French Ministry of Finance will submit a revised deficit reduction plan to the European Union in the next few days. Analysts believe that after decades of being unable to make ends meet, France must show how it will avoid budget austerity, otherwise its credit rating will face the risk of being downgraded.
International rating agencies Fitch and Moody’s have maintained stable ratings on France’s sovereign debt of 2.46 trillion euros (about 112% of GDP), but Standard & Poor’s outlook on France’s AA rating of sovereign debt is negative.
A Reuters report stated that even though France’s fiscal expenditure has reached 57% of GDP over the years, the highest among advanced economies, it is still very difficult to find areas to reduce expenditure. One area chosen by Le Maire for cuts is medical transport services, including the private taxi services that transport large numbers of French patients to and from hospital appointments every day, with the state paying most of the costs. Le Maire said that the aging of the population has increased the annual medical transportation expenditure to 6 billion euros, which is unaffordable for the government. Policies related to medical transportation have been adjusted since 2018, which has caused dissatisfaction among taxi drivers and led to protests.
Francois Villeroy de Gaillot, the governor of the Bank of France, said the fundamental problem was that successive French governments had allowed spending to grow faster than inflation for decades. “I am a big believer in the European social model, but France spends 10 percentage points of GDP more than its neighbors.” He called for ways to keep spending unchanged after adjusting for inflation.
Reuters reported that to achieve this, a delicate balance must be found where cost savings end. For example, patients who use medical taxis help reduce expenses by sharing rides. Jean-Pierre Narduzzi, 82, relies on the medical taxi service to travel to and from his nursing home near the west coast city of Nantes. Some patients who regularly use medical transportation services, including Narduzzi, say that sacrifice may now be unavoidable given the state of public finances.
The French government is also eyeing other areas to cut spending, such as corporate tax breaks, professional skills training support, chronic disease benefits, and funding for the local film industry.
The French National Institute of Statistics and Economics (INSEE) stated on March 26 that France’s fiscal deficit will account for 5.5% of GDP in 2023, exceeding the target of 4.9%. There are also risks whether France’s fiscal deficit target can be achieved this year. Despite this, the French government currently retains its goal of restoring the fiscal deficit to below 3% by 2027, but most economists believe this is unlikely to be achieved.
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