Viva La Macronomics, Part II

Viva La Macronomics, Part II

This article is the second part in a three part series analysing Emmanuel Macron’s economic policy. As it was explained in the last part, this series does not only look at the economic merits and demerits of Mr. Macron’s proposals but also discusses the likelihood of them being implemented with France’s current economic situation taken into account.

This current article examines the slightly less controversial aspects of Macron’s economic plans compared to the earlier one which examined the more controversial labour law reform and corporate tax reduction. All this being clarified, the analysis on the different parts of Mr. Macron’s rather comprehensive policy can be undertaken.

Spending Cuts

As pointed out in the earlier article, France’s fiscal situation is weak and is reeling under overspending.  France’s high-government spending has been a persistent problem and was at 57.6% of the GDP in 2016.

In fact, France’s government spending reached an all-time high of 130,133 million euros in the second quarter of 2017, between 1950 and 2017. The table below provides the data on France’s government spending as % of GDP up to 2015 which clearly indicates the problem. France’s government spending has not been below 55% of its GDP since 2008.

Government Spending as % of GDP

This makes Mr. Macron’s proposal to reduce public expenditure and bring down the size of government, in general, a welcome measure.

The Financial Times reports that Mr. Macron is  advocating cuts of around 60 billion euros over five years. While this rather moderate reduction might be congenial with the French public, it is doubtful whether the fiscal malaise can be ended without bold cuts.

Furthermore, the reduction in corporate tax coupled with no increase in the retirement age and Mr. Macron’s support for extending unemployment benefits to farmers and the self-employed really raises doubts as to how this “slimming down of the state” can be achieved.

Budget Targets

The European Union Commission, the executive wing of the EU, had laid out France’s budgetary woes which burden Mr. Macron. According to The Financial Times, “Brussels [EU commission] increased its estimate of France’s budget deficit for every year from 2016-2018. It forecasts the country would just fall in line with 3 percent ceiling this year, a downgrade from an earlier projection of 2.9 per cent, before swelling again to 3.2 per cent in 2018. This was also raised from 3.1 per cent.”

This presents a worrying picture of France’s budgetary policy. The Commission believes “the deteriorating public finances reflected lower than expected government tax and social security receipts and higher spending on education, security, and civil servant salaries.” The Commission's comments illustrate how troublesome the French fiscal situation is and indicates how difficult it is to tackle it.

Mr. Macron, who plans to fall in line with the 3% ceiling this year, clearly has a challenging task ahead of him. The above spending cuts, which are moderate at best, may help Mr. Macron’s agenda for budgetary prudence.

Also, the trimming of 120,000 government jobs by not replacing their retirees might help France reduce its deficit, but the Commission predicts the government’s spending will hit 56.2% of the GDP in 2018, which still remains the highest in the EU. Mr. Macron, thus, appears to have fiscal proposals that seem to be without much teeth in solving the problems facing the French government’s finances.

That brings us to an end of the second part of our series which primarily discussed the less controversial policies of Macron. The third article shall, among other things, discuss the Fiscal Stimulus package of Mr. Macron along with a verdict on the whole of his policy.

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