On Monday, the French government announced the 2019 budget plan, which remains in line with President Macron’s business friendly agenda. The President said that his goal is “to create French prosperity that is no longer built on public spending but on the prosperity of businesses and creating jobs.” French growth is expected at 1.7% in 2019 versus the 2018 numbers: an estimated 2.0% in France and 2.1% for the Eurozone as a whole.
According to the government’s predictions, the public deficit should approach the European limit of 3% in 2019, reaching 2.8%. This is an increase from the 2018 prediction at 2.6%. The Minister of Economy and Finance, Bruno Le Maire, stated that meeting this EU commitment of 3% is “key not only to our economic credibility, but to our political credibility with our European partners.”
The key measures:
Tax Cuts for Business: ~20 Billion Euro in Total
- Replacement of the Tax Credit for Competitiveness and Employment (CICE) by decreasing employer’s social contributions;
- Lower corporate tax rate (IS) from 33.3% to 31% (planned reduction to 25% by 2022);
- Elimination of the 20% “social fixed rate” on profit-sharing in companies with fewer than 250 employees;
- Repeal of the 3% distribution tax for distributions paid by French companies.
Public Sector Job Reductions
- In order to finance part of these tax cuts and promote efficiency, President Macron aims to reduce the number of public sector posts by 120,000 by the end of his term. A reduction of 4,500 posts is planned for 2019.
Household Tax Cuts
In an attempt to strengthen purchasing power for consumers, and to ease the implementation of planned cuts on the pension system and unemployment insurance, the government included:
- A rebate on the housing tax, which French property occupiers (renters as well as owners) are mandated to pay each year, up to 80%;
- Exemptions from the increase in the Generalized Social Contribution, which is charged on income and finances unemployment and social security;
- Exemptions on overtime pay from social security contributions, also charged on income.
A key challenge for President Macron and a campaign promise: cut government spending and lower the debt-to-GDP ratio by 5% by the end of his term in 2022. In light of his policy actions taken thus far, many analysts question the feasibility of this goal. As a reminder, public spending in France currently represents 55.9% of GDP (the highest % of all OECD countries), compared to a Eurozone average of 47.1%.