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France: An expensive 2023 budget, under the seal of “uncertainties”


by Leigh Thomas and Sophie Louet

PARIS (Reuters) – The French government on Monday presented its budget for 2023 which, in a highly inflationary context marked by soaring energy prices, gives pride of place to spending to the detriment of the restoration of public finances with a forecast of deficit maintained at 5% of GDP for next year.

Presented to the Council of Ministers before a perilous examination in the National Assembly where the executive has only a relative majority, the first finance bill (PLF) for Emmanuel Macron’s second term is based on a forecast growth of 1% for 2023, while the governor of the Banque de France, François Villeroy de Galhau, warned of a slowdown or even a risk of a limited recession.

In its forecasts unveiled on Monday, the Organization for Economic Co-operation and Development (OECD) expects 0.6% growth for France in 2023.

“The uncertainties have never been greater, it is true for France and for all European nations”, declared the Minister of Economy and Finance, Bruno Le Maire, during a press conference.

“The most important and most urgent challenge for France and for European countries is to reduce inflationary pressure,” he said.

“1% is rather the high range”, conceded on BFM Business the general rapporteur of the budget at the National Assembly, Jean-René Cazeneuve (Renaissance), while the government forecast is considered optimistic by many observers.

“The equation is difficult because we are in a very uncertain geopolitical context,” he insisted.

Supposed to “protect the French and move towards full employment”, the budget is built on an inflation forecast of 4.3% in 2023, after 5.4% in 2022.

Although Bruno Le Maire has sounded the end of “whatever the cost”, massive aid to businesses and households during the health crisis due to COVID-19, spending remains at a high level.

“BRITTLE”

With the economic impact of the conflict in Ukraine worsening, with a long-lasting energy crisis, the government is devoting no less than 45 billion euros to financing the tariff shield on gas and electricity prices, a mechanism extended beyond beyond December 31, which should contain the rise in bills to 15% at the start of 2023.

The government has also chosen to maintain the indexation of the income tax (IR) scale to inflation, a cost of 6.2 billion euros.

Consequence: public spending (excluding debt burden) should increase by 21.7 billion euros in 2023 compared to this year for a total of 346.5 billion euros. An increase of 6.6% compared to the 2022 budget.

The “protective” policy defended by the executive will be financed in part by higher than expected revenues, with an increase in social security contributions. The government is counting on a total bonus of 38.5 billion euros in compulsory levies compared to the scenario put forward in August (for a total amount of 1.234 billion euros).

In the public finance programming bill for the years 2023 to 2027 also presented on Monday, the government promises to return to the 3% cap for the public deficit by 2027, a ceiling defined by the European Maastricht criteria.

In an opinion issued on Sunday, the High Council of Public Finances (HCFP) judges this trajectory “unambitious” and “particularly fragile” and also considers that the government forecasts for the PLF are too optimistic in terms of growth, control of the public spending and an increase in compulsory levies.

TOWARDS A 49.3?

To save some four billion euros in savings next year, the government has chosen to spread over two years, in 2023 and 2024, the abolition of the contribution on the added value of companies (CVAE), announced in July by Prime Minister Elisabeth Borne.

A local production tax created in 2010, the CVAE partially compensates for the abandonment of the professional tax, an economic contribution to the budget of local authorities. Communities who are worried about the disappearance of this resource and are demanding compensation, in particular because of soaring energy prices.

In terms of budgetary appropriations, National Education is given a place of choice as announced with 60.2 billion euros, an increase of 3.7 billion euros in appropriations compared to 2022.

Presented as a government priority, ecology, development and sustainable mobility benefit from an increase in credits from 6.6 billion to 31.4 billion euros. The Defense budget increases by three billion to 43.9 billion euros, that of Labor and Employment from 6.7 billion to 30.6 billion euros.

Health sees its budget increase from 2.1 billion euros to 3.4 billion.

In summary, this expensive budget postpones the “normalization” mentioned for a time by the government.

The debt burden should engulf 57.6 billion euros in 2023 with the increase in outstanding debt, which should exceed 3,000 billion euros in the coming weeks, and the rise in borrowing rates.

The Minister Delegate for Public Accounts, Gabriel Attal, has undertaken to reduce the weight of public spending from 57.6% to 53.8% of GDP by the end of the five-year term, in 2027.

Faced with parliamentary opposition, invited upstream to the “Dialogues de Bercy”, it is not hidden in the ranks of the majority that the PLF 2023 could be adopted via the procedure of 49.3 (adoption without a vote).

“The 49.3 is not a dirty word,” said the president (Renaissance) of the National Assembly, Yaël Braun-Pivet, in Le Parisien-Aujourd’hui en France.

The return to parliament is scheduled for October 3. The PLF exam is scheduled to start on October 10.

(Report Leigh Thomas, written by Sophie Louet, edited by Nicolas Delame and Bertrand Boucey)



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