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France’s 2020 budget cuts taxes in bid to placate ‘yellow vests’
PARIS, Sept 27, 2019 (BSS/AFP) – France’s government unveiled a draft 2020
budget on Thursday with more than nine billion euros in tax cuts for
households as it hopes to move on from on from roiling “yellow vest” protests
while still cutting the deficit to within EU limits.
The “social crisis” brought on by the protests, as well as a slowdown in
global economic growth, “led us to make decisions that encourage investment
and consumption”, Economy Minister Bruno Le Maire said as he unveiled the
draft 2020 budget.
The draft budget, which will be officially presented to the cabinet on
Friday, will cut taxes for households by 9.3 billion euros ($10 billion) and
businesses by more than one billion euros.
That includes five billion euros in tax cuts for some 12 million
households already promised by President Emmanuel Macron, the result of a
“great national debate” he held to try to address the ongoing protests.
Macron, who swept to the presidency in 2017 with a pledge to get the
country back on a solid financial footing, was caught short by the “yellow
vest” movement which accused the former investment banker of ignoring the
day-to-day struggles of many French.
After months of street protests that often spiralled into rioting and
battles with police, Macron unveiled tax cuts, wage increases and other
measures for low-income households.
The measures are expected to push this year’s deficit to 3.1 percent of
gross domestic product, making France the only eurozone member to exceed the
bloc’s three percent limit — even as countries like Germany, the Netherlands
and Portugal are likely to post surpluses.
The government forecast next year’s deficit ratio falling to 2.2 percent,
still short of the previous goal of two percent.
And France’s debt mountain will barely budge next year from 98.7 percent
of GDP — far above the 60 percent or less demanded of eurozone members.
The money for the yellow vests — who are also demanding improved public
services — also makes it unlikely Macron will honour his campaign pledge of
balancing the government’s books in 2022.
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“The government abandoned its strategy of reducing France’s structural
deficit in the aftermath of the yellow vests,” Charles de Courson, an
independent lawmaker respected on both the right and left for his public
finance acumen, told AFP.
Nevertheless, the fiscal relief has helped sustain French growth, expected
to reach 1.4 percent this year even as EU economic powerhouse Germany risks
falling into recession. However the government revised its growth forecast
for next year down to 1.3 percent.
– Germany urged to invest –
Le Maire called on Germany to invest to prevent the flagging eurozone
economy from getting worse.
“Germany must invest and invest now, the sooner the better,” he said.
“Do not wait for the economic situation to worsen to make the necessary
decisions.”
He also defended European Central Bank chief Mario Draghi, who has come
under heavy criticism in some circles, including Germany, for unleashing a
huge stimulus package aimed at propping up the eurozone economy.
“We support the courageous decision made by the ECB and its president,” he
said.
Budget Minister Gerald Darmanin said this week that the creation of a pay-
as-you-go income tax system, which did away with self-reporting months after
the fiscal year-end, had brought a two-billion-euro windfall to state
coffers.
The government has already indicated that defence and security spending
will increase next year, offset by cuts at the finance and budget ministries,
and reduced funds for local authorities.
Yet Macron has abandoned his pledge of slashing 50,000 central government
jobs during his five-year term, saying that only 10,500 would be now be cut.
“France has chosen the right economic policies, even if it was forced to
do so” because of the yellow vest revolt, said Philippe Waechter, chief
economist at Ostrum Asset Management in Paris.
“We have a European economy that’s slowing quite rapidly, and you’re not
going to reverse this by cutting back even more,” he told AFP.
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