Macron government charts course for gradual deficit reduction

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(Bloomberg) – France has presented a five-year plan to gradually reduce its crisis-bloated budget deficit, relying on expectations of strong economic growth to avoid deep spending cuts.

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(Bloomberg) — France has set out a five-year plan to gradually reduce its crisis-bloated budget deficit, relying on expectations of strong economic growth to avoid deep spending cuts.

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

This economic backdrop, combined with the goal of limiting 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 spending, and that is what makes it a serious political message on public finances,” he told reporters on Thursday.

France’s strategy to clean up its finances after a spending spike during the Covid pandemic is already clouded by risks. After losing his majority in parliament, it is unclear whether Macron will have the support for the overhaul of the pension system and unemployment benefits he is counting on to reduce unemployment and increase economic activity enough to improve public finances.

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

Moreover, the forecasts of French stability programs have often turned out to be overly optimistic, even when the presidents had a majority in parliament. Earlier on Thursday, economic research center OFCE said it expects Macron to miss its deficit target and unemployment to rise rather than fall over the next two years, standing at 7.5. % in 2027.

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