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France’s finances will come under even more pressure regardless of who wins the elections – News
The main parties have promised new spending, but plans to pay for it are thin on details
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People vote in the first round of early French parliamentary elections, at a polling station in Vanves, near Paris, on Sunday. -Reuters
By Reuters
Published: Sunday, June 30, 2024, 3:56 pm
Already under scrutiny from rating agencies, financial markets and Brussels, France’s public finances are likely to come under greater pressure no matter what the outcome of an early parliamentary election, which begins with the first round of voting on Sunday.
All the main parties have promised new spending, but their plans to pay for it are short on detail and not always fulfilled.
Polls indicate that the far-right National Rally (RN) will come in first place, followed by the left-wing alliance of the New Popular Front and President Emmanuel Macron’s Together in third.
The outgoing government had promised to cut the budget deficit from 5.5% of gross domestic product last year to a European Union ceiling of 3% by 2027 – a target that may be unattainable after the vote, which ends with a second round on July 7.
National far-right demonstration
If it forms a government, RN wants to cut value-added tax (VAT) on energy sales as early as July, which it says would cost 7 billion euros for the rest of the year and 12 billion over a full year.
The RN claims it would be financed by obtaining a €2 billion discount on France’s contribution to the EU budget, although the bloc’s budget for 2021-27 has already been voted on a long time ago.
The party is counting on big gains from increasing a levy on windfall profits from energy producers and replacing a tonnage tax on shipowners with the normal corporate tax, although record profits from that sector in recent years are likely to decline.
RN also wants to overturn a cut in the duration of unemployment benefits due in July, a measure the outgoing government says would cost 4 billion euros.
Further, the RN intends to index pensions to inflation, reduce the retirement age to 60 for people who started working at age 20 or earlier, exempt some workers under 30 from income tax and increase teachers’ salaries and nurses.
It also wants to move forward with cuts in local commercial taxes that the current government had to suspend because they could not be supported.
The RN would also scrap a 2023 increase in the retirement age from 62 to 64, replacing it with a more progressive system that has not yet been specified. The party says it will stick to existing plans to reduce the budget deficit, in line with France’s commitments to EU partners.
By directing social assistance spending to foreign citizens and reducing bureaucracy, the RN promised to implement 20 billion in budget savings this year and next, something the current government has struggled to elaborate and detail.
It also intends to renegotiate the mandate of the European Central Bank to give it a new focus on employment, productivity and the financing of long-term projects.
New left popular front
The New Popular Front (NFP) alliance says its first measures would include a 10% pay rise for public servants, providing free school lunches, supplies and transport, and increasing housing subsidies by 10%.
It says it can cover the costs by raising €15 billion from a tax on superprofits, which has not yet been detailed, and by reinstating a wealth tax on financial assets, also worth €15 billion.
In addition, the group wants to freeze prices for basic foods and energy, while increasing the minimum wage by 14%, with subsidies for small businesses that cannot survive otherwise.
By 2025, the alliance would hire more teachers and health professionals, increase home isolation with subsidies, and increase public spending by an additional 100 billion euros.
It states that the cost would be covered by closing tax loopholes, making income tax much more progressive, restoring wealth tax on financial assets and setting a maximum inheritance for families of €12 million.
From 2026 onwards, public expenditure would reach 150 billion euros annually, namely through increasing the budgets of the ministries of culture and sport to 1% of GDP.
The NFP would also scrap the 2023 increase in the retirement age and eventually aim to lower it to 60. The alliance says the additional spending would be financed by tax increases and stronger growth, but it does not plan to reduce the budget deficit and rejects EU fiscal rules.
Centrist alliance ‘Together’
Although Macron’s party is committed to cutting the budget deficit to 3% of GDP by 2027, institutions such as the national auditor and the IMF had serious doubts even before the early elections were called.
The party has since promised to cut energy bills by 15% from 2025 and match pension increases to inflation. It says it will increase public sector wages, but its programme does not say by how much.
The party remains committed to no major tax increases and will increase the amount parents can give their children tax-free gifts.