(Bloomberg) – France will be planting around € 60 billion ($ 66.4 billion) in cutbacks and tax increases next year, while Prime Minister Michel Barnier tries to reduce a larger budget deficit and to strengthen the trust of investors in the country.
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The savings are needed to reduce the budget deficit to 5% of economic production, of around 6.1% this year, government officials said on Wednesday in a briefing to journalists, as a result of anonymity in accordance with the internal rules.
A little more than two -thirds of the total will come from cutbacks at ministries, local authorities and the social security system, they said. Slightly less than € 20 billion will be generated by temporary tax increases for wealthy private individuals and large companies, as well as by higher green taxes.
The extra return demanding investors to maintain French government bonds compared to safer German government bonds decreased with one basic point to 78 basic points after the details of the budget were published, but remains close to the highest level in more than ten years.
Finding the right balance between the measures in next year’s budget is a delicate challenge for Barnier, whose premiership is weak, since his central coalition does not have the figures for a joint attempt by the opposition to overthrow the government throw, ward off. What increases the pressure is that investors have dumped French assets in recent months because of concerns about the failure of the shortage reduction objectives and the political stability after the elections had yielded a suspended parliament.
The budget will be submitted to the cabinet and parliament on 10 October for debate and possible changes. It is very likely that Barnier will eventually resort to a constitutional instrument to bypass a vote, since he has no majority and there is a convention in France where opposition legislators can oppose any budget bill proposal.
However, if Barnier uses that tool, it gives legislators a chance to set a motion without trust to lower the administration. The budget must be adopted by the end of the year.
Some legislators in the small group that support the minority government of Barnier have warned that they will not support tax increases that will mean that seven years of pro-business policy will be undone during the presidency of Emmanuel Macron.
Administration officials reiterated Barnier’s position that tax increases would be calibrated to hit only the largest companies and the wealthiest individuals. But they also said the green tax would increase by around €1.5 billion, with possible measures on fines for high-emission vehicles and charges on the most polluting forms of transport.
The shortage objective in the original text presented on 10 October will be 5.2% of GDP, whereby some measures – including green taxes and € 5 billion of the planned cuts on the state budgets – will be via amendments during the parliamentary debate entered.
Other steps to reduce expenses include postponing the indexing of pensions until 1 July and limiting the increase in health care expenditure to 2.8% – a percentage that was initially set at 3.2% for 2014 .
–With help from James Hirai.
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