2024-09-02 18:59:18
Not a moment of grace for the incoming Prime Minister and his future government. Before thinking about the state budget for 2025, which should be completed in mid-September and then debated by Parliament from October 1, the new authority will find itself faced with an unexpected slip in public finances. And having to decide quickly what measures to take or not. This is what comes out of the note that Bruno Le Maire, the Minister of the Economy who resigned, and Thomas Cazenave, his Minister of Public Affairs, sent this September 2 to the members of parliament of the Finance Committee in the Senate.
“There is a significant reduction in public finances”, known as Bercy. For Bruno Le Maire, there is no other solution than to act quickly with strong gestures. It recommends making 16 billion euros in immediate savings over the current year’s budget. This is what he plans to tell the future Prime Minister, once he is elected.
The alarm can be summed up in one figure: 5.6% of the gross domestic product (GDP). This is the record level of public deficit risks reached this year, according to a new assessment made by the Treasury Department in Bercy. After peaking at 5.5% of GDP in 2023, a threshold which led the European Union to launch an excessive deficit strategy targeting France, this balance should decline year after year. It is to return to 5.1% in 2024, and fall to 3%, the maximum equivalent authorized by European laws, in 2027.
Taxes are lower than expected
However, if nothing is done, this public deficit is likely to continue to increase slightly instead of starting to decline, we fear in Bercy. This will obviously be a strong signal to both the European Union and investors. Enough to jump the rate gap between France and Germany ten-year yields, the degree of confidence – or distrust – of the markets towards France.
What happened? Two simultaneous movements, according to the letter from the ministers who resigned to the legislators. First, the tax revenues received from the beginning of the year turned out to be a little lower than forecast, as was already the case in 2023. “VAT, income tax and corporate income taxes may be lower than expected,” wrote, without giving a precise figure, the two ministers about to leave Bercy. French growth, however, should be in line with expectations, close to 1% or 1.1% in 2024. But this growth shows that it is “Less tax-friendly” than we had intended, they observed.
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