Budget 2024: spending less but supporting purchasing power, the government's difficult equation

Baptiste Morin with AFP / Photo credits: BERTRAND GUAY / AFP 09:30 am, September 27, 2023

Spending less without completely renouncing to support purchasing power: the government must find a difficult balance in its draft budget for 2024, the first post-crisis with the ambition to consolidate public finances.

€16 billion in savings

To give guarantees of budgetary seriousness, the executive intends to release 16 billion euros in savings in the draft finance law that it will detail Wednesday in the Council of Ministers. But the debates promise to be electric in Parliament. Deprived of an absolute majority in the Assembly and probably of support in the opposition, the government could resolve to adopt it without a vote by resorting, as last year, to Article 49-3 of the Constitution.

The government says it wants to put an end to "whatever it costs", faced with a debt that exceeded 3,000 billion euros this summer, and a deficit well outside the European nails that ranks the France among the bad students of the euro zone.

Phasing out of the tariff shield for electricity

Thus, 10 billion of the 16 billion in savings will come from the phasing-out, by the end of 2024, of the tariff shield for electricity to reduce bills. In addition, there will be reductions in aid to businesses (around 4.5 billion).

Abolition of the tax advantage for non-road diesel

Other avenues for savings have been put forward or confirmed, such as the postponement of part of the production tax reduction (CVAE) for companies, the abolition of the tax advantage for non-road diesel or a tax on motorway concessionaires.

Reduction from 71% to 50% of the tax allowance for furnished tourist rentals

In Le Parisien, the Minister of Economy and Finance Bruno Le Maire also supported a reduction from 71% to 50% of the tax allowance for furnished tourist rentals, such as Airbnb. The aim is to reduce the deficit from 4.9% of GDP this year to 4.4% in 2024, then to 2.7% in 2027, below the European limit of 3%.

Debt is expected to decline less decisively, stable at 109.7% of GDP in 2024 to reach 108.1% at the end of the five-year period, far above the European maximum (60%).

The government intends to set itself up as a defender of purchasing power

For the government, restoring public finances is a question of "credibility" vis-à-vis the European partners of the France and the financial markets. But "there is less and less room for maneuver," said Christian de Boissieu, vice-president of the Cercle des économistes, while economic growth next year would be less dynamic than hoped.

Despite the stated desire to generate savings, the government also intends to continue to set itself up as a defender of purchasing power in the face of stubborn inflation, a politically sensitive subject. Faced with a new surge in prices at the pump, he will take out the checkbook, his desire to authorize the sale of fuel at a loss has not resisted the hostility of distributors to this idea.

A new fuel cheque

The allowance of 100 euros announced by Emmanuel Macron for the most modest households who work and own a vehicle should cost about 430 million euros in the 2024 budget, while the indexation to inflation of the scale of income tax (4.8%), pensions (revalued by 5.2% on 1 January) and social benefits (4.6% on 1 April) will weigh 25 billion euros.

As for the bonus for the purchase of an electric vehicle, it will be increased for the most modest, according to Bruno Le Maire.

No tax increases

A draft law advancing the timetable for commercial negotiations between large retailers and their suppliers will also be unveiled Wednesday in the Council of Ministers, with the hope of accelerating the fall in prices in supermarkets.

In addition, there are other constraints holding back the decline in spending: a debt burden that explodes under the effect of high interest rates; increased spending on education, defence or justice; the need to finance the ecological transition, credited with an additional €7 billion in 2024.

On the revenue side, the executive maintains its red line: no question of increasing taxes; it is even a question of lowering them in the coming years.

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In addition to the budget, the 49.3 is also likely to be drawn Wednesday for the draft law of programming of public finances, text setting the budgetary objectives until 2027. To achieve them, the government estimates the savings needed at 12 billion per year, without defining them, as early as 2025.

This trajectory of public finances was deemed "unambitious" by the High Council of Public Finance.