LFrance is in the sights of rating agencies and the European Commission for its management of its public finances. The deficit reached 5.5% in 2023, it is forecast at 4.4% for 2024. The step is very high and once again raises the question of the validity of the main principles of Emmanuel Macron’s economic policy.
This has implemented a supply-side policy, favoring the reduction of charges and taxes for businesses. It weighed further in 2023 with the reduction in production taxes (3.7 billion euros) and the final stage of the elimination of the housing tax (2.5 billion). Should we backtrack and return to a general increase in major taxes? This would seem to us to be a major contradiction, given that France has been stagnating for three quarters. On the other hand, we can consider a temporary increase in taxes targeting certain behaviors or certain particular incomes, without further affecting the economy.
The diagnosis is known. France is handicapped by the imbalance in its trade balance, with a considerable decline in its market shares compared to its European competitors on the domestic market. In seven years, Emmanuel Macron’s policy has undoubtedly produced effects: the unemployment rate has fallen by 3 points, and 1.2 million jobs have been created in the private sector. The risk capital needed to create start-ups was there and France became attractive again for foreign investors. Business investment increased until the third quarter of 2023. Employment in manufacturing began to grow again and France stopped losing market share.
This supply-side policy should have resulted in superior macroeconomic performance for France compared to its neighbors – this is also the case for Germany and Great Britain. Bercy’s economic forecasts have, until the end of 2023, reflected this optimism, with the corollary of expectations of more abundant tax revenues. The dogma of not having to increase taxes would thus have been verified ex post.
The French exception
Unfortunately, this scenario was thwarted, for reasons of different kinds, which must be kept in mind to understand how we can get out of this bad situation. First, a cactus has crept into the supply policy: labor productivity has not returned to its 2019 level, and France is an exception here compared to the large European countries.
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