France to face extra budget cuts to meet EU deficit target

The French government is to make an extra 4.5 billion euros of cuts to bring the public deficit down to the European Union's target of 3.0 percent of GDP this year. But it is to press ahead with plans to cut wealth tax and local residency tax next year.

Public Accounts Minister Gérald Darmanin Reuters

The new cuts come after a national audit found that the previous government had spent more than previously announced, boosting the deficit to 3.2 percent.

The government insists it can reach the EU stability pact's budget deficit requirement this year without raising taxes or cutting social security or local authority spending.

All the cuts will be at national government level, Public Accounts Minister Gérard Darmanin said on Tuesday.

Cuts in aid, public works projects

Only the Defence Ministry is exempt, although it has already had its budget cut by 850 million euros as part of the government's initial programme agreed by parliament last week.

The biggest savings, 282 million euros, will be made by the Foreign Affairs Ministry, half of that coming from cuts in development aid.

The Economy Ministry has been ordered to save 268 million euros, while the Transport Ministry must spend 260 million euros less, meaning that a number of major public works projects will be slashed.

The Interior Ministry is to save 526 million euros, without laying off staff, and Justice must cut 160 million euros, despite demands from police for better equipment and calls to ease the overcrowding in French prisons.

Education is to reduce expenditure by 75 million euros, without sacrificing teachers' jobs.

Apart from reductions in some employment subsidies, Darmanin said that savings could be made by reviewing contracts for ministries' cars and office technology.

Balancing budget while cutting taxes

But further cuts are likely to be made next year to keep President Emmanuel Macron's commitment to stabilise public spending.

Analysts believe that an unprecedented 20-billion-euro reduction in expenditure would be needed for that, even without compensating for the government's pledge to cut the wealth and local residency taxes.

Macron has promised to end wealth tax on high incomes, leaving it applicable only to real estate, and end housing tax for 80 percent of households.

Although the local tax reduction is to compensate for a rise in social security contributions, it will reduce the government's income by four to six billion euros, following tax cuts by the previous government that will cost the state seven billion euros in 2018.

Government U-turn

The government seemed to be wavering on that pledge last week with Prime Minister Edouard Philippe hinting that it might not be enacted until 2019 but on Sunday night Macron ordered him to go ahead with the changes next year.

He may have been influenced by Economy Minister Bruno Le Maire, who attended a meeting nicknamed "France's Davos" in the southern city of Aix-en-Provence at the weekend and had his ear bent by a number top bosses, anxious that the government's keep its promises in this respect.

During the election campaign Macron said the deficit should be 2.8 percent in 2018 - compared to 3.4 percent in 2016 - meaning that further cuts are on the way.

Public employees' pay freeze

"Structural reforms" will be made next year in the fields of training, job subsidies and housing, Darmanin said on Tuesda.

And 120,000 public-sector jobs are supposed to go by natural wastage by 2022.

Already trade unions are complaining that public employees are bearing the brunt of the economy drive - with a pay freeze this year and a proposal to abolish payment for the first day of sick leave.

They may look with some trepidation at Darmanin's announcement that he intends to organise a megaconference on the public sector to address questions like absenteeism, gender parity and social housing.