How a budget deficit became a political crisis • FRANCE 24 English

How a budget deficit became a political crisis • FRANCE 24 English

[Music] [Applause] Hello and welcome to People in Profit. I’m Sha Pel. It’s been 51 years since the French state last ran a budget surplus. Every lap around the sun since 1974, more money has left the government’s coffers than has come in. Which leads us to the situation we’re in today. The country’s public debt now totals 3.3 trillion. It used to be just over 30 billion in 1974. And France’s public deficit is at 5.8% of GDP, about 169 billion euros in the red. 50 years earlier, the French state was 7 billion euros in the black. And the latest attempt at fixing the country’s public finances has once again hit a wall. Former Prime Minister France’s plan to cut spending on the deficit was so unpopular with Parliament that it led to his government’s collapse. So where do we stand now? Well, Brian Quinn tells us more. Since 1999, the EU has required member states to keep their annual deficits at less than 3% of GDP and overall national debt at under 60% of GDP. As France’s mounting debt pile raises concerns for regulators and creditors, its sharply divided political parties have sharply divergent plans for getting back on track. For President Macron centrist minority, new Prime Minister Sebastian Lukoru inherits a budget plan targeting just under 44 billion euros in savings next year with a goal of bringing the deficit to under 3% within 4 years. Among its provisions, freezing welfare and pension payouts at this year’s levels, doubling co-pays for medications, reducing aid for long-term illnesses, cutting local government budgets, and especially controversial, the scrapping of two public holidays. The center-left Socialist Party’s plan targets just over 21.5 billion in deficit reduction with a 7-year timeline to get under 3%. It focuses on increased revenues, nearly 27 billion euros worth combined with 14 billion in spending cuts and just over 19 billion in stimulus spending. Its headline measures include a tax hike on stock dividends, a reduction in state aid to large companies, and a crackdown on corporate tax shelters. Proponents of what is known as the Zukman tax, a 2% wealth tax on fortunes of over 100 million euros, say it would bring in some 15 billion per year, though some economists say 5 billion is a more likely figure. Though the far-right national rally has abandoned its former goals of exiting both the EU and the euro, the party’s nationalist anti-immigrant slant remains present in its budget plans. a€3.3 billion euro cut to France’s EU contributions, accompanied by a proposal to cut spending on health care for immigrants by4 billion. An overall 13.7 billion euro savings goal accompanied by 23 billion in additional spending via reductions in the value added tax on energy and basic necessities. That gap to be made up for by a supposed rebalancing of the tax burden to focus on profits, speculation, and fraud, including a 33% tax hike on corporate stock buybacks. With the far ends of the political spectrum at odds, and even the more centrist opposition parties loathed to collaborate, finding sufficient compromise to pass a new budget by the end of the year will be a herculean task for the country’s next government. Well, to help us make sense of this political and economic chaos is Alexandra Roules. He’s an associate professor of economics at INSEAD and a specialist on France’s fiscal and macroeconomic issues. Thank you so much for being with us. Thank you. Very happy to be with you. So, looking back at Morn’s presidency, the opposition keeps throwing around the figure that he added 1 trillion euros to the French debt pile. Where did he go wrong? Was it the COVID crisis followed by the energy crisis brought on by the war in Ukraine or is there more to it than that? So there is definitely uh the the COVID crisis followed by the um energy crisis that led to the the surge in debt. Now the question I think is um you know there is a debate as to um M also did a lot of tax cuts uh to spur the the economy and there’s a debate to what extent these tax cuts contributed to the um deficit the situation that we are in um but I think the question is really now that we are in this situation you know we have to look ahead and we have to try to find the compromise compromise that we can to try to put um our depth back on a sustainable path. on on the left side of the political spectrum. We mentioned it all. It talks about increasing taxes on the rich using that duckman tax uh which is set at 2% minimum tax on the wealth of the richest individuals. What’s your take on this? Would it lead to an exodus of the country’s biggest fortunes? What would what effect would it have? So I think I mean the the the Zuckman tax comes now it’s at the center of the public finance discussion but I think it cames it came the proposal came actually before and the idea is to try to correct um the fact that at the very top of the wealth distribution people are able to avoid taxes in particular um because a big part of their revenue is going to flow through uh their holding society in the form of dividends and then um avoid taxation that way and so I think the the idea to try to make sure that everyone pays its fair share of taxes is a good one and for that reason you know the these proposal um have to be uh you know um studied and and and taken seriously. Now a key in this proposal is that the professional assets are to be included in the tax base. It’s key because this is the way that you can avoid tax you are precisely try to go after tax avoidance. But the problem is of course it raises also a lot of um uh concerns about what would be the effect on the economy. What would be the effect for people whose company is valued uh you know very highly but do not the company do not yet generate um um you know a lot of revenue like a case in point would be Mistral and so how exactly do you um do you do it I think that’s it’s it’s really in how do you write the proposal that that um that you know that we have really to discuss now in order to make sure that we can on the one hand go after the tax avoidance mechanism But on the other hand, make sure we protect uh um our economy and and in particular um our incentives to innovate. Um looking at the various proposal that proposals that were detailed in in the report we just saw, um do you believe that any of the political forces in France have a credible plan to restore public finances? Look, I think that given the amount of adjustment that we need to do, we will need to do a little bit of everything, you know, and I think because also given the political situation that we are in, um we will need to be um doing both a reduction in spendings, both uh attacks on the ultra rich as we were discussing both, you know, like we will need to do a bit of everything. So I don’t and and um and I think that you know it’s it the best is to try to have the the the the burden of the effort shared across multiple groups of people in the society and so you know personally I think that u we can discuss each you know each detailed measure but what’s sure is that we we will need a a sum of all of these measures. A fair distribution of the burden is exactly the question that’s being thrown around right now, especially uh with French people taking to the streets this week to voice their dissatisfaction uh with the status quo. Um how do you think the state of public finances uh plays into uh popular discontent as we’re seeing right now? No, I think I mean we the popular discontent I think goes beyond um you know beyond the state of public finance. We had uh popular discontent in the m at the moment of the pension reform. We had it before in uh during the yellow vest. Each time it’s actually slightly different um sociology of who’s in the is in the street and you know what’s the exact reason. Um I think you know like the the you know people are are unhappy in part because um they would like to have you know better uh you know better pay growth you know a better economy. I mean a big part of the problem is not just the public finance. It’s in some sense it’s more the macro econ economy right is the fact that our growth rate is not so high. I mean if we had you know like very high productivity gains or very high growth rate like we had you know in the back in the back you know 50 years ago and more than that 60 years ago um you know things everything would be easier both the consolidation of public finance but also how people um see their own situation. So I think you know what’s the the the thing that is important to understand is that you know I don’t think I mean it’s important for people to be able to voice their discontent for sure but at the same time you know right now what we need is from the political leaders is to find a compromise that can go that can pass the assembly that we have which is a divided assembly but it is what it is and and um and that allows us to put our debt back on track you know like it’s a very simple objective and And I think that again this will mean that not everything in the budget will please everyone uh because it’s going to be a compromise. We we keep talking about about debt obviously but what’s the effect of this political instability and paralysis on economic growth. So I think I mean the the this definitely has a cost right this instability. So we saw it through um the rating the rates at which we borrow right we saw that we the the spread uh increased and so this is costing us and it’s it’s making the public finance uh equation even harder um now the thing is there is not much we can do about this instability because it’s just I mean unless people you know we have we no party has the majority right so by definition unless we go in the form of a coalition or unless party parties make some kinds of agreements Um it is going to be you know it is going to be very unstable right if if uh if people that are not you know in the in the the all the opposition party decide to uh throw down the government each time you know we’re going to have a new prime minister every 3 months. That’s kind of what what’s going to happen, right? And so um there is not much we can do about this at this point. Um it, you know, we just have to to hope that uh this time around the the member of parliament managed to find a a compromise. And one final question, actually, France had had no issues finding buyers for uh its government bonds on the sale that took place on September 4th. Um it just had to promise much higher yields. Why is it that French debt remains relatively attractive on the bond market? Look, you know, look, we have, you know, we still have, you know, a very uh reliable country, okay? You know, with um you know, we might change prime minister, but our institutions are stable. We have, you know, a lot of um um you know, we are large country. Uh we are liquid like there’s so there’s a lot of um um assets in France as well in terms of uh our technology, our um skilled workforce. We know that uh probably we will need to increase a bit our taxes. Probably we will need to maintain our pension reform the way it was decided a couple of years ago. Probably we’ll need to reduce spendings in some way or another. So these things are going to happen no you know one way or the other. And so I think that is also uh reassuring the investors right because they know that ultimately um we will have to do it. Alexandra Roule, you’re an associate professor of economics at INSEAD. Thank you so much for sharing uh your insights and giving us much needed context on this discussion. Of course, my pleasure. Thank you. Well, that’s all for this week. Hopefully, you now all have a better grasp of France’s financial and political situation. As usual, if you want to catch our previous episodes, you can do so on the People and Profit page of the France 24 app or on the podcast platform of your choice. Thank you for watching and stay tuned. [Music]

Another prime minister gone in France. François Bayrou submitted his resignation Tuesday after losing a confidence vote in parliament. He gambled on a budget demanding over €40 billion in savings. The plan froze welfare, cut civil-service jobs, and scrapped two public holidays. President Emmanuel Macron named Sebastien Lecornu France’s new prime minister, a longtime ally, to pick up the mantle of trying to pass the budget through a divided parliament. So where does the country’s economy stand now? Charles Pellegrin discusses this and more with Alexandra Rolet, associate professor of economics at INSEAD. 
#france #budget #bayrou

🔔 Subscribe to France 24 now: https://f24.my/YTen
🔴 LIVE – Watch FRANCE 24 English 24/7 here: https://f24.my/YTliveEN

🌍 Read the latest International News and Top Stories: https://www.france24.com/en/

Like us on Facebook: https://f24.my/FBen
Follow us on X: https://f24.my/Xen
Bluesky: https://f24.my/BSen and Threads: https://f24.my/THen
Browse the news in pictures on Instagram: https://f24.my/IGen
Discover our TikTok videos: https://f24.my/TKen
Get the latest top stories on Telegram: https://f24.my/TGen