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Macron’s Government Charts Path for Gradual Deficit Reduction

·2 min read

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France set out a five-year plan to gradually reduce its crisis-swollen budget deficit, relying on expectations of strong economic growth to avoid sharp spending cuts.

Despite a “difficult economic situation in coming months” and “major geopolitical uncertainties on energy and trade,” Finance Minister Bruno Le Maire said President Emmanuel Macron’s promised economic overhauls in the next five should drive annual growth to 1.8% growth in 2027 and bring unemployment down to 5%.

That economic backdrop, combined with an aim to limit annual spending growth to a two-decade low of 0.6%, would bring the budget deficit below 3% by the end of Macron’s second term in 2027.

“This stability program is based on French growth that will progress faster than public expenses, and this is what makes it a serious political message on public finances,” he told reporters on Thursday.

The strategy for repairing France’s finances after a surge in spending during the Covid pandemic is already overshadowed by risks. After losing his majority in parliament, it is unclear whether Macron will have the support for overhauls of the pension system and unemployment benefits that he’s counting on to reduce unemployment and raise economic activity enough to improve public finances.

The president could also face opposition when reducing the expenses of local governments, while other measures might be delayed. Cutting inheritance tax for instance, as promised by Macron during his campaign, is not a priority at the moment as the focus is on cutting corporate taxes, according to the finance ministry.

Moreover, the forecasts of French stability programs have often proved over-optimistic, even when presidents had majorities in parliament. Earlier Thursday, economic research center OFCE said it expects Macron will miss his deficit goal and unemployment will rise rather than fall in the next two years, settling at 7.5% in 2027.

Here’s what the program forecasts:

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