Macron's Premier Says France Must Break Spending Addiction

Updated on
  • Philippe promises 20 billion euros of tax cuts in five years
  • Public spending won’t increase before 2022, Philippe says

French President Emmanuel Macron

Photographer: Jasper Juinen/Bloomberg

Prime Minister Edouard Philippe said France must break the addiction to public spending that has left its economy trailing peers as he outlined plans to rein in the budget and cut taxes.

In his maiden speech at the National Assembly as premier, Philippe promised 20 billion euros ($23 billion) of tax cuts by the end of President Emmanuel Macron’s term in 2022. Spending will drop by the equivalent of 3 percentage points of gross domestic product in that time and taxation will fall by 1 point, he said.

“We must face the truth about the financial situation of the country,” Philippe said. “France can no longer be the champion of both public spending and of taxes. France has an addiction to public spending, and like all addictions it requires willpower and courage to kick it.”

Philippe spoke a day after Macron addressed a joint session of congress in Versailles. While Macron’s speech was a lofty call for French renewal, Philippe provided the nuts and bolts, laying out the timetable and the specific steps the government will take to revive an economy that has underperformed the euro zone for the past three years with unemployment roughly double the rate of the U.K. and Germany.

Philippe won a vote of confidence in his government by a margin of 370 to 67. The number of votes against was the lowest ever for any prime minister setting out his agenda since France’s current constitutional arrangements came into effect in 1959, though the level of abstention was also at a record.

Political Renewal

The prime minister’s address wasn’t just a dry rendition of his policy program though. He began with an ode to the new parliamentarians from Macron’s movement, pointing to a black female lawyer from a tough neighborhood who benefited from affirmative action at an elite university, a female soldier who rose through the ranks and a Rwandan-born economist adopted by a French couple.

“You are an assembly that has been feminized, made younger, and renewed,” he said. Of the National Assembly’s 577 members, 430 were elected for the first time in June’s legislative elections.

Still, after the president’s soaring rhetoric on Monday, Philippe’s message was very much focused on concrete measures.

Payroll taxes will be cut starting in 2019. Corporate income tax will be lowered gradually from 33.3 percent now to 25 percent in 2022 to converge with the European average. The wealth tax will be limited to real estate assets starting in 2019. And those actions will be achieved while keeping France’s commitment to its European partners to limit the deficit that has been part of every government budget for the past three decades.

French government spending accounted for 56 percent of GDP in 2016, the highest in the 28-nation European Union, according to Eurostat. While the tax burden of 48 percent of GDP was also the EU’s highest.

The government has already canceled a planned pay increase for public employees for this year and is looking for at least another 2 billion euros in savings to bring the deficit down to 3 percent of GDP or less in 2017 from 3.4 percent in 2016. Finance Minister Bruno Le Maire will update euro-area finance ministers on the situation next week and present a multi-year budget plan in September.

“The message is clear,” Philippe said. “Work must pay.”

The prime minister also outlined plans to build 15,000 new prison places, raise the price of cigarettes to 10 euros a pack, make health care more efficient, and renew France’s education system.

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