The next Prime Minister and their future government will not have a grace period when it comes to dealing with an unexpected public finance issue before even considering the State budget for 2025. A note from Bruno Le Maire, the outgoing Minister of the Economy, and Thomas Cazenave, his delegate minister for public accounts, reveals a serious public finance deficit that needs immediate action. Le proposed solution is to make 16 billion euros in immediate budget savings for the current year. The deficit is projected to reach a record 5.6% of the GDP, higher than the expected 5.1% for 2024, and it may continue to increase if left unaddressed.
The unexpected public finance issue is primarily due to lower than expected tax revenues, despite the expected growth in France’s economy in 2024. This situation marks a departure from the previous year, where tax revenues fell short of projections. The decrease in revenues from VAT, income tax, and corporate tax is a cause for concern and could negatively impact France’s standing with the European Union and investors. If the deficit continues to grow instead of decreasing as planned, it could lead to a lack of confidence from the market, reflected in the widening gap between French and German ten-year yields.
To address the public finance deficit, the outgoing Minister of the Economy proposes swift and decisive action, urging the future Prime Minister to immediately implement 16 billion euros in budget savings for the current year. The deficit, which was projected to decrease annually, is now at risk of reaching 5.6% of the GDP, posing a challenge to meeting the European Union’s deficit rules and maintaining market confidence. The proposed measures are necessary to prevent a further increase in the deficit and demonstrate the government’s commitment to fiscal responsibility.
The unexpected financial situation is a result of lower tax revenues than expected, despite the projected economic growth in France. The deficit, which was supposed to decrease over time, is now at risk of reaching a record 5.6% of the GDP for 2024, highlighting the need for immediate action. The deficit increase could have negative implications for France’s relationship with the EU and investors, as well as impact market confidence. Implementing budget savings and addressing the deficit promptly is crucial for stabilizing public finances and ensuring economic stability.
In conclusion, the new government will face immediate challenges in addressing the unexpected public finance deficit, which is projected to reach 5.6% of the GDP for 2024. Lower than expected tax revenues have contributed to this situation, despite the anticipated economic growth in France. Immediate action, including 16 billion euros in budget savings, is necessary to prevent a further increase in the deficit and maintain market confidence. It is crucial for the government to demonstrate fiscal responsibility and address the deficit promptly to ensure economic stability and adherence to EU rules.
