France Aims to Control Inflation Through 2024 Budget Proposal

28 Sep, 2023

France Aims to Control Inflation Through 2024 Budget Proposal

France's government is taking a multi-faceted approach in its 2024 budget bill to address the challenges of rising inflation while also aiming to improve its fiscal position. Finance Minister Bruno Le Maire outlined the key aspects of the budget proposal, emphasizing the need to address the current inflation crisis and reduce the country's debt and deficit.

To help households combat inflation, welfare and pension payouts will see significant increases of 4.6% and 5.2%, respectively, in response to higher inflation rates. Additionally, income tax thresholds will be adjusted upward to prevent further tax burden on households.

Despite the considerable expenditure of 25 billion euros on these measures, a portion of this cost will be offset by an increase in value-added sales tax due to inflation, expected to bring in 10 billion euros.

Inflation currently stands at approximately 5%, necessitating these measures to ease the financial burden on citizens.

In an effort to reduce the budget's overall expenses, the government plans to achieve 16 billion euros in savings for 2024, with a significant portion (10 billion euros) coming from the removal of gas and power price caps.

Having provided substantial support to households and businesses in response to energy price shocks in recent years, the government is now faced with the challenge of reigning in these measures, as its deficit reduction goals are at risk of not being met.

The independent fiscal watchdog, Haut Conseil des Finances Publiques, expressed concerns that the government's deficit reduction plans from 4.9% of GDP this year to 4.4% in 2024 lack ambition and may leave France trailing other EU nations. The government intends to gradually reduce the fiscal deficit over the coming years until it falls below the EU's 3% ceiling by 2027.

However, without more substantial efforts to control spending, there is a risk of missing these deficit targets, particularly if economic growth falls short of the forecasted 1.4% for the next year, according to economist Olivier Redoules. This scenario could necessitate emergency taxes or indiscriminate spending cuts.

In terms of revenue generation, the government is looking to align its tax policies with environmental goals by increasing taxes on businesses and activities with higher pollution levels. These tax proceeds will be directed towards funding green investments.

The 2024 budget bill will gradually reduce tax breaks for farmers and public works companies on vehicle fuel while strengthening the existing tax on highly carbon-emitting cars as part of the incentive/disincentive program. Toll road operators and airport operators will also face new taxes, generating an estimated 600 million euros annually.

Furthermore, the budget includes provisions to implement a global corporate tax minimum of 15%, agreed upon by nearly 140 countries in 2021, which is expected to generate 1.5 billion euros in tax revenue by 2025.

While there were discussions about increasing taxes on airplane tickets over the summer, this proposal was not included in the budget. Similarly, a tax increase on short-term rentals affecting platforms like Airbnb may be considered by lawmakers in parliament but was not part of the initial budget.

Additionally, the government plans to boost investments in environmentally friendly projects by 7 billion euros, bringing the total to 40 billion euros for the next year.