France overshoots budget deficit target: How will the government source funds?

France’s public sector budget deficit widened in 2023 by more than the government had planned, according to data released on Tuesday by statistics agency INSEE.

This means there was a greater gap between income and spending, throwing Macron’s reputation as a fiscally stable president into doubt.

The deficit can largely be explained by France’s lower growth figures last year, which reduced tax revenue.

Also, the rate of the increase in spending slowed only moderately last year, up by 3.7%, following a rate of 4% in 2022.

France’s Finance Minister, Bruno Le Maire, warned earlier this month that the country had overshot its deficit target, stressing that more funds need to be found to meet the limit of 4.4% of GDP for the coming year.

By 2027, France is seeking to bring its deficit to under 3% of national output to stay in line with EU goals.

Where will funds come from in 2024?

The government has already pencilled in €10 billion of emergency spending cuts for 2024, and they’re hoping to save €12 billion in 2025.

Budget Minister, Thomas Cazeneuve, has even suggested that next year’s saving target may have to be pushed up to €20 billion.

Speaking on Tuesday, Finance Minister Bruno Le Maire said: “State finances must be readjusted … that will require a great deal of determination, strategy, and composure.”

This isn’t the first time Le Maire has made such a promise, but the severity of the deficit burden may now force him further into action.

Spending cuts are planned for government ministries and public building subsidies will be scaled back.

The state is also considering transforming its unemployment benefit system and energy price support for consumers is being phased out.

In order to plug the gap in the budget, Le Maire nonetheless showed his opposition to a tax increase.

“It is perfectly possible to reduce public spending without dipping into the pockets of French people, and I remain… totally opposed to an increased tax burden on our citizens who already pay high taxes.”

Global shocks affecting growth

During the pandemic years, France’s public spending deficit naturally jumped as the country responded to the immediate health threat.

In 2020, the figure rose to 8.9% of GDP, dropping to 6.6% in 2021.

Although last year’s reading does show some signs of improvement, it is not falling as rapidly as experts would have hoped.

Le Maire has partially blamed this trend on global economic shocks.

“Growth is slowing all over the world, especially in Europe…We must take into account the new geopolitical context: the war in Ukraine, the clashes in the Middle East, the situation in the Red Sea, the very marked economic slowdown in China and a recession in Germany in 2023.”

France’s credit rating is set to be updated in April and May as agencies assess the country’s ability to fulfil its economic obligations.

Last April, Fitch agency downgraded France’s rating, citing a risk of high government debt and opposition to President Macron’s pension reform agenda.