France's government will raise welfare and pension payouts next year to help households fight inflation while also seeking to get its public finances under control, Finance Minister Bruno Le Maire said on Wednesday as he presented the 2024 budget bill.
"The primary challenge is obviously to respond to the worst inflation crisis since the 1970s that is hitting developed countries without exception," Le Maire told journalists.
"The second challenge is to bring down debt and reduce the deficit."
Le Maire said welfare payments would be increase by 4.6% and pensions by 5.2% to reflect higher inflation. Income tax thresholds would also be increased to avoid adding to the tax burden on households.
While those measures would cost 25 billion euros, inflation would boost value added sales tax by only 10 billion euros. Inflation is running at around 5%.
Helping to offset that cost, the government aims to squeeze 16 billion euros in savings from the 2024 budget with 10 billion coming from the end of gas and power price caps.
After spending heavily this year and last to help households and businesses cope with the energy price shock, the government has little choice but to rein in the support with its deficit reduction plans at risk of getting blown off track.
The Haut Conseil des Finances Publiques, an independent fiscal watchdog, said plans to cut the public sector budget deficit from an estimated 4.9% of GDP this year to 4.4% in 2024 lacked ambition and risked leaving France lagging other EU countries.
The government aims to gradually reduce the fiscal shortfall over the coming years until it falls below an EU ceiling of 3% in 2027.
In the absence of more effort to rein in spending, the government is running the risk of missing its targets, especially if growth falls short of its 1.4% forecast next year, economist Olivier Redoules said.
"The risk is that there would need to be emergency taxes or indiscriminate spending cuts to meet the deficit targets," he said.
In terms of revenues, the government aims to green its tax policies by raising taxes on businesses and activities that pollute more and using the proceeds to fund green investments.
To that end, the 2024 budget bill will gradually reduce a tax break farmers and public works companies currently get on their vehicle fuel while an existing tax on the most carbon-emitting cars would be reinforced under an existing incentive/disincentive programme.
The government will also hit toll road operators such as Vinci and Eiffage as well as airport operators such as ADP with a new tax, raising an estimated 600 million euros annually.
Le Maire said the 2024 budget would implement a global corporate tax minimum of 15% agreed among nearly 140 countries in 2021 and was expected to generate tax revenue of 1.5 billion euros in 2025.
The budget did not include plans for a tax increase in airplane tickets that had been mooted over the summer. Nor did it include a tax increase on short-term rentals that would hit Airbnb, although a finance ministry source said it could be added by lawmakers in parliament.
Meanwhile, the government plans to increase investments in environmentally friendly projects by 7 billion euros, bringing the total next year to 40 billion euros.
Source : Economy News by Reuters / September 27, 2023