Macron to Bring French Public Spending to Lowest in 10 Years

[Vergennes]

• Tax take in 2018 will be least since 2010, government says
• Deficit figures slightly better than government’s forecasts
  
  
  
  
  
  

President Emmanuel Macron’s administration plans to cut French public spending to its lowest level since the start of the financial crisis next year and squeeze the tax take to its lowest since 2010 as part of a strategy to remake the economy and revive the nation’s standing in Europe.

Government expenditure will fall to 53.9 percent of output in 2018 and the tax revenue will decline to 44.3 percent, Finance Minister Bruno Le Maire said Tuesday. France’s budget deficit will amount to 2.9 percent of gross domestic product in 2017 and 2.6 percent next year, with other sources of revenue such as dividends from state companies supplementing income from taxes.

As his labor market reform comes into force on Friday, Macron is pressing ahead with changes that the European Commission and the International Monetary Fund have been recommending for years. French public spending peaked at 57.3 percent of GDP in 2015, falling to 57 percent in 2016.

“This is a bit better than we had indicated,” Le Maire said Tuesday on France 2 TV. “We’re the developed country with the highest public spending,” he said, adding that the government’s goal is to squeeze spending to just over 50 percent of GDP by the end of its mandate.

https://www.bloomberg.com/news/arti...-french-public-spending-to-lowest-in-10-years

 

[Vergennes]

France is actually the country where overall public spending (central government + local governments + social security) is the highest in proportion of the GDP among OECD nations at 56% in 2016 of the GDP. Even 'achieving' to topple Denmark.

The government initially planned €20 billion of cuts in 2018,however the savings are now planned to be lower at €16 billion due to better growth and receipts forecast.

The goal is to reduce public spending and the fiscal pressure,which is also among the highest in the world. Overall taxes will be reduced by €11 billion next year.

The budget 2018 will be presented next week,which will also announce the trajectory of the next five years...... and while the President previously announced only the defence budget will get a boost next year,several other ministers have announced budget increases for their ministries including ;

Defence : + €1,8 billion
Education : + €1,2 billion
Health : +11%
Home : +7%
Justice : +3,8%
Ecology : +3%

@Nilgiri @anant_s @LA se Karachi @Sher Shah Awan

 

[Nilgiri]

France is actually the country where overall public spending (central government + local governments + social security) is the highest in proportion of the GDP among OECD nations at 56% in 2016 of the GDP. Even 'achieving' to topple Denmark.

The government initially planned €20 billion of cuts in 2018,however the savings are now planned to be lower at €16 billion due to better growth and receipts forecast.

The goal is to reduce public spending and the fiscal pressure,which is also among the highest in the world. Overall taxes will be reduced by €11 billion next year.

The budget 2018 will be presented next week,which will also announce the trajectory of the next five years...... and while the President previously announced only the defence budget will get a boost next year,several other ministers have announced budget increases for their ministries including ;

Defence : + €1,8 billion
Education : + €1,2 billion
Home : +7%
Justice : +3,8%
Ecology : +3%

@Nilgiri @anant_s @LA se Karachi @Sher Shah Awan

How much of the yearly budget is totally committed/untouchable...i.e the bedrock base as % of total?

I was looking at US budget allocation recently and was surprised how little room they have given commitments. Lends to why big govt just grows on its own naturally (often unsustainably) if you don't go in and start physically hacking away at it.

To me Macron is going for the low hanging fruit (i.e cutting the more buffer related/non-commital spending) to release some fiscal pressure in short term (after all 20 bn Euro is about 1.5% of total govt spending range for France...and even less of GDP). Structural long term stuff would involve much legislation and much greater amounts.....which he will need more popularity first. So I guess he is doing what he can with the situation inherited and stay in the envelope afforded to him but not just be status quo either (i.e he is pushing to boundary rather sitting firmly within). France spending deficit is around 6% which is manageable but can improve of course to get leg up on other competitor nations (who are kicking can down the road a lot of time and going to suffer later I feel).

I see you listed social security separate to govt budgets, I am guessing its quasi-private+public spending (i.e the total is comprised of public base + private augmenting)? Do you have breakdown % on that if so?

BTW, French infrastructure and logistic companies can definitely play big role in upcoming US infra expansion/renewal (more monetary wise for France than direct jobs wise though....but its welcome for France anyway given the buffers help French economy/jobs too down the road i.e French service sector), I think thats why Macron is being pretty friendly with Trump on personal level. There is also a big public spending boost on infra and capacity going to happen in India starting next year that France should be looking at getting into as well. If Macron is dynamic on responding to all of these (and reforming the internal flows from this outward reach), France should be on firm economic footing by end of his term.

 

[Vergennes]

@Nilgiri The social security budget is actually a separate budget from the state and is subject to a separate vote and act of parliament. (loi de Finances de la securité Sociale).

https://en.wikipedia.org/wiki/Social_security_in_France

Its budget represents nearly €500 billion.

Overall social spendings represents more than €700 billion. France is (once again I must say...) the country among the OECD ones that spends the most as proportion of the GDP on social matters. (31,5 % of the GDP)

To me Macron is going for the low hanging fruit (i.e cutting the more buffer related/non-commital spending) to release some fiscal pressure in short term (after all 20 bn Euro is about 1.5% of total govt spending range for France...and even less of GDP). Structural long term stuff would involve much legislation and much greater amounts.....which he will need more popularity first. So I guess he is doing what he can with the situation inherited and stay in the envelope afforded to him but not just be status quo either (i.e he is pushing to boundary rather sitting firmly within). France spending deficit is around 6% which is manageable but can improve of course to get leg up on other competitor nations (who are kicking can down the road a lot of time and going to suffer later I feel).

Well,Macron actually inherited a somewhat better situation with Hollande's reforms finally showing more or less results,growth picking up,consumer confidence,jobs creations,corporate investments and reduced deficits,which is going to help him.

And to push ahead his reforms of the EU,he must restore France's credibility in front of other EU partners especially Germany and respect our commitments,such as reduce the public deficit to under the 3% mark,which we didn't achieve since the start of the crisis.

It is planned to be at -2,9% this year and -2,6% next year. That will probably also avoid us from being under a sanction procedure from Brussel since they already extended several times the deadline to reduce our deficit under the 3%.

 

[Nilgiri]

@Nilgiri The social security budget is actually a separate budget from the state and is subject to a separate vote and act of parliament. (loi de Finances de la securité Sociale).

https://en.wikipedia.org/wiki/Social_security_in_France

Its budget represents nearly €500 billion.

Overall social spendings represents more than €700 billion. France is (once again I must say...) the country among the OECD ones that spends the most as proportion of the GDP on social matters. (31,5 % of the GDP)




Well,Macron actually inherited a somewhat better situation with Hollande's reforms finally showing more or less results,growth picking up,consumer confidence,jobs creations,corporate investments and reduced deficits,which is going to help him.

And to push ahead his reforms of the EU,he must restore France's credibility in front of other EU partners especially Germany and respect our commitments,such as reduce the public deficit to under the 3% mark,which we didn't achieve since the start of the crisis.

It is planned to be at -2,9% this year and -2,6% next year. That will probably also avoid us from being under a sanction procedure from Brussel since they already extended several times the deadline to reduce our deficit under the 3%.

Ok so social security is basically what the govt provides through its legislation...apparently it uses private umbrella network (URSSAF) to collect the funds from the French economy, and thats done separate to say official taxes. Interesting.

I would imagine as private citizen that you can then opt for additional coverage above (or more specific to your needs) what the state provides from private insurance companies?

By spending deficit I was using the spending as denominator than GDP, so yeah roughly it gets halved to 3% using GDP as denominator (since govt spending is about half of GDP). IMF is still projecting around 3.2% deficit this year (2017) and it goes to around 2.8% for 2018....and long term they projecting 0.6% for 2022. If you can surpass that this year and contain below 3% this year itself its a good result. Best of luck to France.

BTW is it true that Macron is also pushing to reduce corporate tax rate from 33% to 28% by 2020? With the average deductibles/credits (if any) do you know what these numbers effectively are? Are there any other tax rate plans (on say income etc)....because reducing those also impact the fiscal target (much easier to meet by keeping taxes stationary and cutting spending side only). But being right-wing I do like this more challenging plan of cutting both spending and revenue to de-leverage more private-side liquidity flow within France....and still pushing to get better fiscal deficit because there is more pressure imposed on the govt spending side.

 

[Vergennes]

@Nilgiri If I am not wrong,the actual corporate tax rates are ;

15% of the taxable income up to and including €38,120, 28% up to €75,000 and above which the rate is 33,3%.

Next year,companies making less than €500K in profits will see their tax rate decrease from 33,3% to 28%.

For the companies making profits above €500K,their rate will decrease from 33,3% to 31% in 2019 - 28% in 2020 - 26,5% in 2021 - 25% in 2022. That will represent about €11 billion. The goal is to put the country on EU's average.

An existing payroll tax credit scheme (CICE) would be transformed in 2019 into a permanent decrease in employers charges.

 

[anant_s]

Good to see he is not committing same mistake of overspending as lot of other economies have done. In long run prudence is always good for economy.
Also reducing taxes will improve public spending improving overall economic health.

 

[Vergennes]

Good to see he is not committing same mistake of overspending as lot of other economies have done. In long run prudence is always good for economy.
Also reducing taxes will improve public spending improving overall economic health.

The government is actually in a financial impasse and several major infrastructure projects have been frozen the time to be reviewed. The actual government needs dozen of billions of € to honor the promises made by the former governments.

-The TGV is no longer a priority,Bordeaux-Toulouse, Poitiers-Limoges and Lyon-Turin lines have been suspended. Lyon-Strasbourg, Bordeaux-Hendaye and Montpellier-Perpignan project lines are threatened too. The focus will be made on regional express transports (TER) and renovating the network. The minister for transports said that while the TGV is used by 1% of the pop,it attracted 16% of the transport investments the precedent years....

-All highway projects have been suspended and no other new highway will see the light. The focus will be made on renovating national,departemental and communal roads.....

Among the others.....

 

[Mage]

That's good for the economy. Overspending always backfires. I wonder what Melenchon would say about it. He wanted to double public spending and tax people to 90% of their income.....

So Monsieur how is Mac doing overall in your opinion? Would you rather had Mademoiselle Pen?

 

[Vergennes]

That's good for the economy. Overspending always backfires. I wonder what Melenchon would say about it. He wanted to double public spending and tax people to 90% of their income.....

Well something positive at least...... a while ago he wanted to tax the richest of 100% of their income..... !

In the eyes of Mélenchon and his sidekicks,we don't spend enough. Even when we spend €1,250 billion (56% of the GDP) he wanted to increase spendings by €173 billion a year during his five year term,which would have represented 8 more points of GDP.

He also wanted to borrow some €100 billion on financial markets to fund public investments..... that would be 4,5 points of GDP of additional debt.... as if the public debt wasn't already high enough. (96% of the GDP or €2,147 billion)

So Monsieur how is Mac doing overall in your opinion? Would you rather had Mademoiselle Pen?

Rather good for now. A part from the row with the armies and the chief of staff few months ago. As long as he implements his reforms,the rest is peanut for me.

 

[Nilgiri]

@Nilgiri If I am not wrong,the actual corporate tax rates are ;

15% of the taxable income up to and including €38,120, 28% up to €75,000 and above which the rate is 33,3%.

Next year,companies making less than €500K in profits will see their tax rate decrease from 33,3% to 28%.

For the companies making profits above €500K,their rate will decrease from 33,3% to 31% in 2019 - 28% in 2020 - 26,5% in 2021 - 25% in 2022. That will represent about €11 billion. The goal is to put the country on EU's average.

An existing payroll tax credit scheme (CICE) would be transformed in 2019 into a permanent decrease in employers charges.

Yah of course I'm talking the highest tax bracket (when quoting 33% to 28%). The other brackets are really for small business owners etc, they will generally be much lower, surprised to see the big bump from 15% to 28% though from bracket 1 to 2 (and having 2 brackets there to begin with)...and just a little topping off past brac 2 to the "big guys". But then again I have not looked into the employment/productivity figures and spreads for France businesses and Europe more generally.

In my ideal world. I would have 0% tax rate below a threshold and fixed rate above it. Then tax captive non-production or low-production accumulated capital/wealth beyond that. Model applies to both income and corporate....and some system within country to let its constituents continuously experiment with iterations to the levels (competition and see which actually provides more growth and development etc). The data is still very small from what I have studied/analysed within Canada for the size of population and amounts of money we talking about to give this much control of the liquidity to govt structures. The argument made still too flimsy for me....people just blindly believe big govt = good and small govt = bad etc...with little actual numbers for the argument (esp to the degrees they claim).

 

[KediKesenFare3]

Germany is spending less money for social security in terms of GDP/proportion but yet the German state provides far better services for its citizens. How come?

 

[Vergennes]

Germany is spending less money for social security in terms of GDP/proportion but yet the German state provides far better services for its citizens. How come?

Do you have any data or comparison ?

http://bfmbusiness.bfmtv.com/emploi/protection-sociale-match-france-allemagne-330660.html