Macron Wants to Keep Cutting Taxes Despite Deficit Warnings

(Bloomberg) -- French President Emmanuel Macron said he wanted to keep cutting taxes on businesses and the middle class despite recent warnings about the state of public finances.

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“We need to continue a trajectory of lowering taxes on our middle class. Why? Because if we want to continue to get the country on board, we need to give more credibility to work,” Macron told newspaper L’Opinion in an interview released late Sunday. “I’m talking about those who are too wealthy to receive support and not rich enough to live well.”

Asked about corporate taxes, he said “we must continue to work on production taxes. I would like us to try to have a mechanism that allows us to improve industrial jobs or jobs for craftsmen and tradesmen.”

Last month, Bank of France Governor Francois Villeroy de Galhau told Macron that the government must stop cutting taxes — unless it has other ways to finance revenue shortfalls — given France’s growing debt and a bigger-than-expected budget deficit compared with before the surge in energy prices that triggered public support to households.

The European Commission forecast on Monday that France’s deficit will remain stable at 4.7% of GDP this year, thanks to the withdrawal of some energy-related support even as an expected economic slowdown weighs on tax revenue. The deficit is predicted to narrow to 4.3% next year.

After declining from 111.6% of GDP to 109.6% this year, public debt is seen broadly stabilizing around 109.5% of GDP in 2024 rather than pursuing its reduction, according to the commission’s latest spring forecasts.

“Investment is set to slow down on the back of tighter financial conditions, while consumption is expected to remain sluggish as consumer confidence stays low” in France, EU Economy Commissioner Paolo Gentiloni told a news conference. “The economy is expected to gain momentum in 2024, reaching 1.4% growth thanks mainly to higher consumption.”

Fitch Ratings recently cut France’s credit rating to AA- from AA, with a stable outlook, bringing it to the same level as countries including Ireland and the Czech Republic. France’s projected budget deficit for this year and next “are well above” the median for countries with AA ratings, Fitch said in a note.

The rating company highlighted the political risk resulting from Macron’s recent effort to raise the minimum retirement age, which has sparked mass protests and fractured parliament, making it harder to get the necessary support for future reforms.

Macron hit back on Sunday. “Fitch is deeply wrong in its political analysis,” he told L’Opinion. “We’ve demonstrated that we could pass a lot of laws with this majority.” Macron lost his absolute majority during legislative elections last year, pushing him to strike more compromises to govern. But he failed to rope in the conservatives to vote on his pension reform, although they are traditionally in favor of working longer.

Macron has been trying to reset his presidency amid protests and strikes. This week and next, he’s focusing on announcing foreign investments and steps to encourage the industrial sector in France. He’s also announced billions of euros in new investments to promote cycling and reform professional training.

--With assistance from James Regan and Zoe Schneeweiss.

(Updates with EU commission forecasts starting in fifth paragraph.)

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