The French Finance Ministry plans to raise its deficit target for 2024 to the equivalent of 5-5.1% of gross domestic product (GDP), up from the original 4.4%, due to the rapid deterioration of the fiscal situation, according to the French financial daily Echo. France's deficit target for 2025 has also been revised upward to 4.1%, up from 3.7% previously.
French President Emmanuel Macron and Bruno Le Maire, minister of economy, finance and industry, and digital sovereignty, disagree on the issue, with Le Maire advocating deeper budget cuts to get the country's finances back on track, the report said. The new targets call for another 10 billion euros ($10.85 billion) in spending cuts on top of the 10 billion euros ($10.85 billion) in spending cuts announced in February.
The Echo, citing anonymous government sources, said the government was considering further cuts in government spending, possibly increasing taxes on the profits of energy companies and cutting some social security spending, particularly on health insurance.
According to foreign media reports, France's finance ministry will submit a revised deficit reduction plan to the European Union in the coming days. Analysts believe that after decades of living beyond its means, France must show how it will avoid a budget crunch or risk a downgrade in its credit rating.
International rating agencies Fitch and Moody's have both maintained stable ratings on France's 2.46 trillion euros (about 112 percent of GDP) of sovereign debt, but Standard & Poor's has a negative outlook on the country's AA rating for sovereign debt.
The Reuters report says that even though French fiscal spending has reached 57% of GDP over the years, the highest among developed economies, finding areas to cut spending is still tough. One of the areas Le Maire has chosen to cut spending is medical transportation services, including the private cab service that transports a large number of French patients to and from their hospital appointments every day, with the state paying for much of the cost. Le Maire said the aging population has made annual medical transportation spending of up to €6 billion too much for the government to bear.There have been adjustments to policies related to medical transportation since 2018, which have sparked discontent among cab drivers and led to protests.
François Villeroy de Gayo, governor of the Bank of France, said the fundamental problem is that successive French governments have allowed spending to grow faster than inflation for decades. "I'm a firm believer in the European social model, but France spends 10 percentage points more of its GDP than its neighbors," he said, calling for a way to keep spending unchanged after adjusting for inflation.
For this to happen, a delicate balance must be found where the cost savings fall, according to a Reuters report. For example, patients who use medical cabs help reduce spending by carpooling.Jean-Pierre Narduzzi, 82, relies on a medical cab service to get to and from his nursing home near the west coast city of Nantes all year round. Some patients, including Narduzzi, who regularly use the medical transportation service say such sacrifices will now likely be difficult to avoid given the state of public finances.
The French government is also eyeing spending cuts in a number of other areas, such as corporate tax breaks, support for professional skills training, benefits for chronic illnesses, and grants for the local film industry, among others.
The French National Institute of Statistics and Economic Studies (INSEE) said on March 26 that France's fiscal deficit will be 5.5% of GDP in 2023, exceeding the target of 4.9%. This year, France's fiscal deficit target can be achieved is also still a risk. Nonetheless, the French government currently retains the goal of returning the fiscal deficit to below 3% in 2027, but most economists believe this is unlikely to be achieved.
