France will have a Public Deficit over 5% in 2024

Could the issue of French public finances turn the government and the majority upside down in France, causing a sort of internal revolution?

This Wednesday’s presentation by Bercy, the French finance ministry, of new budget targets for the remainder of the five-year term is taking place against a backdrop of unprecedented tension and feverishness since Emmanuel Macron’s arrival at the Elysée. And for good reason: a new savings plan—for amounts no doubt close to the 10 billion euros already announced in February—is being mooted for 2024 without anyone really agreeing on how to achieve it.

The source of this agitation lies in the stability program, a document produced every year to outline the budgetary trajectory of the term of office for Brussels and our European partners. Its general contours will be revealed tomorrow, but the Council of Ministers is scheduled to review it on April 17. One thing is clear: the picture will be black, even grim. Last year’s unprecedented slippage in the deficit—expected at 4.9%, it ended up at 5.5% of GDP—has shattered Bercy’s hopes for the coming years.

French government budget

A political catastrophe is developing.

Officially, the objective of returning to below 3% in 2027 remains in place, even if no economist really believes in it any more. On the other hand, all the steps required to reach this target will be reviewed. According to our information, Bercy is now leaning towards bringing the public balance down to a low of -5% to -5.1% this year, whereas it was previously expecting -4.4%, a level that is now unattainable in view of the fairly deteriorated starting point of 2023. For 2025, the preferred assumption is -4.1%, compared with -3.7% in previous forecasts. “This could change at the margin right up to the last moment”, warns a person close to the matter.

These new figures, still very abstract, will not extinguish the political crisis that has been brewing for several weeks. Even when revised downward, the targets will require a mountain to climb before they can be reached. This will of course be the case in 2025: the Minister Delegate for Public Accounts, Thomas Cazenave, has already mentioned 20 billion in savings to be found. “Daniel Labaronne, Renaissance MP for Indre-et-Loire, argues: “We need to make departmental program managers more accountable so that they can make proposals. However, the government does not want to reveal its cards before the summer.

In the meantime, he has other problems to deal with with the 2024 budget. The first savings plan of 10 billion euros unveiled in February is already insufficient to contain the deficit and bring it down to the new target range of between 5% and 5.1% of GDP. According to several sources, “savings of an equivalent amount, in the order of around 10 billion euros,” are being suggested.

Macron is furious with Le Maire

This latest announcement to slim down public spending has sparked a firestorm within the executive and the majority. In recent days, Bruno Le Maire has thrown all his political weight behind a rectifying finance bill (PLFR), even mentioning the date of May 20 in a message sent to several MPs, as “Les Echos” revealed. This sudden move provoked a furor at the Elysée Palace and Matignon, who had already made it clear that they did not want the PLFR. Emmanuel Macron, furious with his Minister of the Economy, said so again on Monday to close the chapter.

“We’re a little bewildered by these two opposing lines,” admits a majority MP. “What has made the public debate tip over is the deficit figure, which is agitating the majority like never before. We did a Pollock; we all threw our ideas for savings or tax increases on the web. The President was terribly annoyed, and there’s nothing worse than the Lépine savings contest,” says a heavyweight member of the majority.

“We have a strong point of consensus between us about the return to below 3% in 2027. It’s only fair that there should then be a debate on how to achieve this,” asserts Mathieu Lefèvre, coordinator of the Renaissance deputies on the National Assembly’s Finance Committee.

Avenues for savings

Opposition parties are taking advantage of this feverish pace to pound the majority and the government. The chairman of the Assembly’s Finance Committee, Eric Coquerel (LFI), has threatened the executive with a motion of censure on this budget issue, calling on LR to vote in favor. These are the same Republicans who, through the voice of their president Eric Ciotti on Tuesday, attacked the government’s “hidden plan” to raise taxes after the European elections. “It’s deadly for us; we’ve got to put a stop to this little music as quickly as possible,”  admits a senior member of the majority.
To achieve this, we need to convince them that it is possible to find $10 billion in additional savings during the year without a tax increase or a PLFR. The presidential camp is cogitating.

A retroactive end-of-year law would be used to regularize the further freezing of government appropriations as a solution. This could also include an increase in the tax on energy companies’ profits, although the idea of a specific bill has been dropped, given the risk that the opposition might take advantage of the situation to push through additional taxes on other sectors of the economy.
The idea of freezing certain social spending (notably health insurance) is also being examined. Finally, the idea of a temporary corporate tax surcharge this year is being floated behind the scenes, although it seems to have few supporters.