The directions are known. To reduce France’s heavy debt, the government will present at the end of September a budget for 2024 which seals the gradual end of “whatever it costs” and identifies 16 billion euros in savings, against a backdrop of less dynamic growth than ‘hoped.
The draft budget, presented on September 27 to the Council of Ministers, is affected by a gloomy economic environment which led the executive to revise its domestic product growth forecast downward to 1.4%, compared to 1.6%. gross for next year.
Growth will continue
“In 2024, growth will continue to progress”, after 1% forecast for 2023, the Minister of Economy and Finance, Bruno Le Maire, told journalists. “It will be driven by our manufacturing production, by the definitive exit from the inflationary crisis and by the resumption of consumption,” he continued. “The recession in Germany, the difficulties in China and the persistence of high interest rates will nevertheless have an impact on this growth.”
On Thursday, the European Central Bank raised its reference interest rate once again, to its all-time high, a move aimed at fighting inflation but which increases the cost of debt for France.
Debt reduction
The cost of this, estimated at 38.6 billion for 2023, should reach 48.1 billion next year – the equivalent of the budget planned for Defense – and up to 74.4 billion in 2027.
In this more difficult context, and as the verdict in October from the Fitch and Moody’s rating agencies on French financial health approaches, the government intends to provide guarantees of budgetary seriousness.
It aims to reduce the country’s debt from 111.8% of GDP in 2022 to 108.1% in 2027. The public deficit should increase from 4.8% of GDP in 2022 to 4.4% in 2024 then 2. 7% at the end of the five-year term, below the European objective of 3%.
“This acceleration of debt reduction is fundamental at a time when all our European partners are committed to this path,” underlined Mr. Le Maire, while inflation is expected to fall to 2.6% next year compared to 4.9% in 2023, according to the executive.
The end of “whatever it takes”
No more billions of euros spent wildly to support households and businesses in the face of the pandemic, then the energy and inflationary shocks after the Russian invasion of Ukraine. The government plans to make 16 billion in savings next year, the bulk of which (10 billion euros) will come from the gradual elimination of the price shield for electricity, which has made it possible to contain bills.
“We will exit frozen prices but we will maintain taxation at the floor level again in 2024 to guarantee the lowest possible prices for households,” assured Bruno Le Maire.
To this will be added reductions in aid to businesses (4.5 billion) and to employment policy (1 billion) as well as 700 million from the unemployment insurance reform.
Other savings
Other savings already mentioned, such as the abolition of the Pinel system to aid new construction (2 billion), the tightening of the zero-rate loan (PTS, 900 million) or the pension reform, will produce their full effects later.
To bring money into the state coffers, the government is fine-tuning “taxation of surplus profits” of motorway concession companies and intends to increase the excise on gas (a tax), “without impact on the consumer “, underlined Bruno Le Maire. He also questions the “high” margins in refining, of which TotalEnergies is number one in France.
It is also counting on the fight against fraud (1.5 billion per year by 2027) and the introduction of the minimum corporate tax (1.5 billion from 2026). This tightening of the screw does not, however, call into question, according to the minister, the government’s strategy of reducing taxation for businesses and households, at the heart of its policy since 2017. The CVAE, a production tax weighing on businesses , will be eliminated to the tune of 1 billion next year.
Ecology, a lever
Households will see the income tax scale increased by 4.8%, but they will have to wait until 2025 to see the promise of a 2 billion tax reduction materialize.
At the same time, the government also boasts a green-tinged budget: 7 billion euros will be devoted to the energy transition. Brown tax loopholes (favorable to fossil fuels) will be eliminated, such as the one which reduced taxes on non-road diesel.
“All brown tax revenues, to the nearest euro, will go towards the ecological transition and towards the greening of our economy”: “the State does not put a euro in its pocket”, assured the minister.