Will France also go into a provisional budget exercise?

Will France have a budget by Christmas ? Will Paris, like Berlin, also go into temporary operation? The threat of a motion of censure against Michel Barnier's government is becoming more and more pressing and, on paper, would have the numbers to succeed.

On Wednesday evening, deputies and senators managed to reach an agreement in the Joint Committee on the Social Security Budget . But without a majority in the National Assembly, the Prime Minister could wield the constitutional weapon of 49-3 from next Monday, a rule that allows him to issue a law without the approval of Parliament, which could, however, cancel the rule itself. And, let's remember, the government does not have a majority and relies on the RN's abstention from supporting censorship.

Furthermore, in the event of a motion of no confidence, the government could fall immediately. If he resigns, he could resort to article 47 of the Constitution pending the appointment of a caretaker government. This tool allows an incumbent executive to request a special emergency law to renew the previous year's budget, entering an equivalent of the Italian provisional budget exercise

This emergency budget procedure allows us to “address the most pressing problems, but this would only postpone adjustments and aggravate economic and financial uncertainty,” says Bruno Cavalier, chief economist at ODDO BHF. This unprecedented situation would have a cascading effect on public finances and on the taxation of families and businesses. Let's see what could happen to the French.

Deficit: 5% target is highly unlikely

On the deficit front, the extension of the 2024 budget to 2025 would make the 5% deficit objective even more difficult to achieve, and we are talking about an objective that is higher than the theoretically binding one of 3% for EU countries. This is because government budget revenues and expenditures are indexed to the consumer price index. However, the potential freeze of the state budget in 2025 would save France around 10 billion euros.

This is what the Attal government had calculated before handing over the keys of Matignon to Michel Barnier. “ The renewal of a technical budget will have a restrictive effect in nominal terms ”, underlines Mathieu Plane, economist at the Observatoire français des conjonctures économiques (OFCE). “ This freeze could exert a rather strong constraint on the budgets of ministries and public employees ,” continues the economist. According to OFCE calculations, this situation would lead to “budget savings of 15-20 billion euros”. In addition to these cuts to government revenue, there will also be potential reductions in revenue and spending for social welfare and local governments. All this increases uncertainty about the 5% deficit target for next year.

Taxation: towards an increase in income tax

On the fiscal front, the application of Article 47 of the Constitution would lead to an increase in taxes on families and businesses. “One of the purposes of a budget is to update a number of fiscal and tax mechanisms in line with inflation. If tax bases are not updated, this can lead to an increase in taxation or an actual reduction (in the case of property taxes) ,” explains Olivier Redoules, research director at Rexecode.

In the autumn, the government proposed to freeze the indexation of the income tax scale to reduce the public deficit. The OFCE has calculated that this freeze would bring the State around 3 billion euros. In France, 380,000 families would become subject to income tax if the tax scale were frozen. As for property tax, “ the freeze would represent a gain for families but less revenue for local authorities ,” explains Mathieu Plane.

As for corporation tax (SI), “ it would not change because it is a fixed rate ,” he adds. On the other hand, freezing the mechanisms for indexing social benefits could push already fragile families into even greater difficulty. As regards pensions, elderly people could also have their pensions frozen for a few months, as automatic indexation mechanisms are not necessarily guaranteed in the event of a caretaker government. A prospect that could put the budgets of the most modest families to the test.

A political setback

However, the use of these special forms of balance, as in Germany, comes as a huge disappointment to governments who, until yesterday, thought they absolutely dominated the European Union. Remember Merkel's smiles with Sarzozy? Today, however, Italy has approved its budget, for better or for worse, in time, and will respect European limits better than France will.

However, an increasingly unsustainable rock weighs on all economies: common European policies imposed from above, irrespective of national specificities, which have recently also been cloaked in a supposedly confused and unrealistic foreign policy, totally out of touch with the reality of current economic and political balances. . Serious politicians would take a bath in humility and realism.

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The article Will France also go into a provisional budget exercise? comes from Economic Scenarios .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/anche-la-francia-andra-in-esercizio-provvisorio-di-bilancio/ on Fri, 29 Nov 2024 10:19:21 +0000.