April 26, 2019 / 7:10 AM / a month ago

France's Macron looks to match tax cuts with spending cuts

PARIS (Reuters) - French President Emmanuel Macron has ordered that further cuts to income tax must be matched euro-for-euro by cuts in public spending to keep the budget deficit from spiraling out of control, his finance minister said on Friday.

FILE PHOTO: French Finance Minster Bruno Le Maire leaves the weekly cabinet meeting at the Elysee Palace dedicated to the reconstruction of Notre-Dame Cathedral two days after a massive fire devastated large parts of the gothic structure in Paris, France, April 17, 2019. REUTERS/Philippe Wojazer

In his response to months of anti-government protests, Macron said late on Thursday that he would cut income tax further by 5 billion euros ($5.6 billion).

“The president has set a principle of which I am the guarantor: each euro of decrease in income tax must be financed by a decrease of one euro in public spending,” Finance Minister Bruno Le Maire told LCI television.

Macron said people would have to work longer to pay for lower taxes, and promised pension increases for the poorest.

Macron is seeking to reboot his presidency after five months of protests against high taxes and what demonstrators see as elitism from the political establishment, which they say is embodied by the 41-year-old Macron, a former investment banker.

More protests are expected on Saturday, which will mark the 24th straight weekend of unrest. Thousands have been arrested, and the often violent demonstrations have driven away tourists, kept shoppers off the streets and discouraged business.

Vowing to stay the course on his pro-business reforms, Macron largely dodged protesters’ demands for more radical measures, such as reinstating a wealth tax.

The tax cut comes on top of a 10 billion-euro package of concessions to protesters in December, which was aimed at boosting the income of the poorest workers and pensioners.

“The latest measures are fiscally expansionary and the risk is that funding them through spending cuts may prove difficult,” Morgan Stanley economist Matthew Pennill wrote.

“The overall plan represents a sizeable fiscal boost to the economy. That’s good from a growth perspective. But, despite a better budget outturn in 2018, we see risks of extra (debt) issuance going forward, with large-scale fiscal consolidation now looking less likely,” he wrote.

Le Maire said the tax cut would benefit 15 million households, the vast majority of taxpayers. Budget Minister Gerald Darmanin said it would ease the burden on all but the wealthiest taxpayers by about 10 percent from next year.

That works out to about 300 euros more per household, the OFCE economics think tank’s Mathieu Plane told Reuters.

WORKING LONGER

Among the measures announced, Macron said pensions of less than 2,000 euros a month would be pegged to inflation, which Darmanin said would cost 1.4 billion euros from next year.

Macron also pledged to set a minimum pension of 1,000 euros a month, which was welcomed by Laurent Berger, the head of France’s biggest union, the reformist CFDT.

“Everything will depend on how words become acts. We’ll see if acts follow,” Berger said.

In addition to spending cuts, Macron said tax cuts would be offset by scrapping tax loopholes for companies, which are also benefiting from a gradual reduction in corporate tax.

However, Macron said that ultimately the French would have to work longer, as in other European countries. He ruled out pushing back the minimum retirement age of 62, though, saying people would be given incentives to work longer.

Nearly two-thirds of people polled shortly after the press conference found Macron to be unconvincing, according to a Harris Interactive survey.

“We’re far from the ambition we were hoping for, so we’re going to keep fighting, but there’s also no question for me that some overtures were made,” the CFDT’s Berger said.

Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta

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