French PM Warns Of More Cuts To Tackle Country's Debt 'Volcano'
In his opening speech to parliament on Tuesday, Edouard Philippe side-stepped the notion of one-size-fits-all austerity, instead insisting that the plan of the new centrist president, Emmanuel Macron, was to reduce public spending while launching a €50bn (£44bn) investment programme and cutting a range of taxes, including slashing corporate taxes to boost businesses.
Philippe’s speech revealed a delicate balancing act between what he called unavoidable public spending cuts coupled with state infrastructure investment and tax cuts that he promised would raise people’s spending power.
He warned that French public spending and debt had reached unsustainable levels. “We are dancing on a volcano that is rumbling ever louder,” Philippe said. “The French are hooked on public spending. Like all addictions, it doesn’t solve any of the problems it is meant to ease. And like all addictions, it takes will and courage to detox.”
Cutting France’s budget deficit is key to winning the trust of its European Union partner, Germany, and persuading Berlin to embark on reforms of the bloc. France has one of Europe’s highest levels of public spending.
Philippe said public debt totalled €2.1trillion, nearly the equivalent of a year’s economic output, which left the country vulnerable to speculation. He said the government aimed to bring France’s deficit within the EU limit of 3% of GDP this year.
Exact details of where public spending cuts would happen were not spelt out. Philippe, who was on the French right before he was appointed by Macron, said the public sector wage bill would be reduced, meaning cuts to the number of state workers. He also spoke of scrapping tax loopholes and reviewing housing spending.
But, crucially, Philippe promised taxpayers would not bear the brunt. “France cannot remain the champion both of public spending and taxes,” he said.
“Businesses must want to set up and develop on our territory rather than elsewhere,” he added, announcing that corporate tax would be cut from 33% to 25% in the next five years.
Philippe reiterated Macron’s campaign promises, including the loosening of labour laws to “free up” business. But the timescale for some flagship tax cuts – such as reducing housing tax – could be pushed back, coming into effect between now and 2022.
The rightwing opposition party, Les Républicains, which during the election campaign had argued that France had not balanced a budget for 40 years, said the proposed spending cuts did not go far enough and there was insufficient detail on how to finance the new spending.
The leftist Jean-Luc Mélenchon denounced what he called a free-market dismantling of the state.
Philippe reached out to voters confirming Macron’s promises to make dental and eye care free on the health system, overhaul the school-leaving exam, the baccalauréat, and introduce a new national service for young people.
Other measures included compulsory vaccinations for young children and progressively raising the price of a packet of cigarettes from €7 to €10.
Last week, France’s independent auditor revealed an €8bn funding shortfall in this year’s budget, saying the deficit would once again be above the EU’s limit of 3% of national income.
Philippe had immediately seized on this to blame overspending on the previous administration under the Socialist François Hollande, for whom Macron had worked as an economic adviser then economy minister until last year.
It is a tradition in French politics for each new administration to blame the previous one for overspending, but Hollande, who inherited a much higher funding black hole from the rightwing Nicolas Sarkozy, had failed to blame Sarkozy loudly enough and paid the price when he then tightened the belt on public spending and his popularity plummeted and support collapsed.
Philippe and Macron have sought to distance themselves from the Hollande era.
Philippe’s speech came as Macron took part in a missile launch simulation aboard the French nuclear submarine Le Terrible in the Atlantic. France will be the only EU country with nuclear weapons after Britain’s departure. According to the French constitution, it is the president who decides whether to fire nuclear missiles.