Frances nudges up 2020 deficit forecast to 2.1%

France expects its public sector deficit to reach 2.1% of economic output next year, up from the 2.0% forecast prior to tax cuts promised in response to the “yellow vest” protest movement, a government budget projection showed yesterday.
President Emmanuel Macron announced plans at the end of April to reduce income tax by €5bn ($5.7bn) as part of measures to defuse months of protests over issues such as fuel levies, weak purchasing power and perceptions that Macron’s administration was arrogant.
Budget Minister Gerard Darmanin said last week the government was still aiming for a deficit of about 2% next year and had identified savings to offset the upcoming tax cuts.
But France’s public audit office has said the government is in danger of missing its fiscal targets unless it makes spending cuts.
Macron’s pledge to reduce the income tax burden by €5bn came on top of a €10bn package of social measures unveiled in December at the height of the “yellow vest” unrest.
The updated public finance forecasts, posted on a government website, also slightly increased the deficit projections for 2021, to 1.7% from 1.6%, and for 2022, to 1.3% from 1.2%. The government maintained its previous forecast of 3.1% for the 2019 deficit, a temporary spike linked to a change in corporate taxation.
France’s has slipped further into the red, the national statistics bureau said on Thursday, only days after the country’s public auditor warned of “worrying” debt levels.
Public debt rose to 99.6% of gross domestic product in the first quarter of the year, the Insee bureau said, widening the gulf between the eurozone’s 60% of GDP debt limit and the French reality.
France is now €43.6bn ($49.6bn) deeper in hock than at the end of 2018, when the debt to GDP ratio stood at 98.4%.
Macron’s government is targeting a ratio of 98.9% for the end of this year.
Insee said the rise in the public sector debt was mostly due to central government spending, with local authorities and the social security system adding much less to the debt mountain.
On Tuesday, France’s public auditor warned that the country’s debt level was “worrying” and urged the government to control spending.
In a report, the Cour des Comptes said the growing divergence between France and its neighbours on debt reduction “could lead to a deterioration of the perceived quality of France’s debt among investors”. It chided the government over its failure to take advantage of a spell of growth to significantly rein in overspending, which leads to increased borrowing every year. The International Monetary Fund also warned last month that France’s debt was “too high for comfort” and called on the government to cut spending.
Neighbour Italy is in the crosshairs of the EU Commission which has put Rome on notice about its snowballing debt, as well as its deteriorating deficit position, reopening a political battle with Rome.
Italy’s debt ratio is, at 132% of GDP, much higher than that of France and the second-biggest in the eurozone after Greece.
Germany, the eurozone’s biggest economy ahead of France, had a ratio of just over 60% at the end of last year.