On Monday, the French government will present a budget that will restore Emmanuel Macron's fiscal credibility despite extra spending to cushion energy price shocks and the challenge of emboldened opposition in parliament.
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After huge outlays during the Covid epidemic, the president has a plan for his second five-year term that includes containing the deficit below 5% of economic output next year and below the European Union's 3% ceiling by 2027.
As the economic outlook deteriorates and the cost of capping electricity and natural gas prices soars, the balance of tax and spend becomes harder. The government has earmarked another 16 billion euros $15.6 billion in the budget for 2023 to prevent bills rising more than 15%.
The budget will sacrifice some of Macron's pro-business plans by delaying tax cuts to preserve government revenues and keep the deficit goal in sight. Jean-Rene Cazeneuve, a senior member of the National Assembly's finance committee, said last week before the formal presentation of the fiscal plans to cabinet that the target is a red line that we must not cross. There are heightened political risks surrounding the budget for 2023 after Macron lost his absolute majority in the June elections. If the government gets the support of some opposition lawmakers, Prime Minister Elisabeth Borne would have to use an article in the constitution, called 49.3, that allows bills to pass without votes. The price would expose her government to the risk of being toppled in a confidence vote.
Budget Minister Gabriel Attal said in an interview with French newspaper JDD that opposition parties are unlikely to back the budget as a matter of principle, leaving little doubt about the parliamentary outcome.
Attal said the oppositions said 49.3 is probable. Without a budget, France can't do anything. None Central state spending fell by 2.6% in volume in 2023 due to the end of the measures, government eyes crackdown on social security fraud and savings in health.
If the government changes its social security policy to raise retirement age instead of negotiating a reform with unions and opposition parties, divisions could widen further if the government includes an amendment to raise the retirement age in the social security section of the budget. Ministers said last week that Macron may choose that path.
There are economic risks as the equilibrium of the budget assumes growth of 1% next year, a base case that is increasingly uncertain. Economists expect only 0.5% to be achieved, which is also the reference scenario of the Bank of France. If the economy is weaker than predicted, the budget would need to be revised with more rigor to meet the deficit target.
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