France denies plotting tax raid to plug €154bn black hole

Emmanuel Macron and his ministers have been accused of losing their grip on France’s finances after the budget deficit surged well above forecasts.

Finance minister Bruno Le Maire was forced to deny that the government would launch a tax raid to plug a yawning gap in the budget after the country borrowed more than expected last year.

The state deficit expanded to 5.5pc of economic output in 2023 from 4.8pc in the previous year, far wider than the 4.9pc that the government planned for. The deficit between tax revenues and public spending grew to €154bn (£132bn) last year.

Debt as a share of gross domestic product now (GDP) stands at 110.6pc in France, according to statistics agency Insee.

The surge in the deficit is a blow to Mr Macron, who has sought to burnish his reputation as a business-friendly, safe pair of economic hands since first taking office in 2017.

Pierre Moscovici, head of the Cour des Comptes, France’s state auditor, warned that it was “very, very rare” for a government to get its deficit forecast this wrong.

He told France Inter radio: “This puts us in an unfortunate position.

“We have the highest public debt in Europe – and it’s gone up by two percentage points since the Covid crisis – and we have the highest social contributions in Europe and among they highest public debts in Europe. We’re third on the podium behind Italy and Greece and the only one whose public debt is not going down.

“And on top of that we have the highest public deficit in the eurozone.”

While the ratio of debt to GDP fell slightly last year compared with 111.9pc in 2022, it remains well above its pre-pandemic level of 97.9pc in 2019.

The latest figures throw into question Mr Macron’s strategy of gradually repairing finances by relying on growth-enhancing overhauls, such as loosening labour laws or raising the retirement age.

France has already downgraded its forecast for growth this year from 1.4pc to 1pc, following growth of 0.9pc in 2023.

Mr Moscovici said: “If you add all that together, we have reached a stage where… we have to tell the truth to the French about the state of our public finances.

“How do you expect us to fund the additional expenditure we need on Ukraine when we are this indebted?”

France has announced €10bn of spending cuts this year in an effort to reduce its deficit to 4.4pc of GDP. Like all eurozone members, France is committed to keeping its deficit to below 3pc of GDP.

The government has committed to an additional €12bn in savings in 2025, though Thomas Cazeneuve, France’s budget minister, has suggested that next year’s saving target will have to be increased to €20bn.

Charlotte de Montpellier, a senior economist at ING, said the deficit reduction goal this year currently looked “completely unattainable”.

Despite the shortfall in state coffers, Mr Le Maire confirmed on Tuesday that he was “totally opposed to any tax increase” to reduce the gap.

He told RTL radio: “We can perfectly make savings on public spending without digging into the pockets of the French.”

However, Francois Bayrou, a key centrist backer of the Macron government, said the topic of targeted tax rises should be debated.

He said on Monday: “Lawmakers have been looking at options and how we could have better balance in terms of fairness without damaging the image of France that attracts investment.”

Ms de Montpellier said: “Since the beginning of Macron’s presidency, the idea has been not to raise taxes, but only to modulate spending. In recent days, the government’s supporters seem to be going back on this idea, with some mentioning targeted tax rises. Tax rises can therefore no longer be ruled out.”

Bruno Retailleau, of the centre-Right French Republicans, warned: “We are the most taxed country in the OECD. If the government [raised taxes], it would be a mistake.”

Political opponents seized on the worse-than-expected figures ahead of European elections in June.

Eric Ciotti, head of the Republicans, called the deficit and public debt increases “the latest symphony from the ‘Mozart of finance’ (Macron’s nickname)”, adding that it “sounds like a swan song”.

Fellow conservative Jean-François Husson said: “Bruno Le Maire has been discredited and stripped of his credibility.”

Bank of France governor, Francois Villeroy de Galhau, has also warned that France’s debt and deficit woes are damaging its credibility in Europe.

He said in an interview with French newspaper Le Figaro this month: “For 40 years, it’s never been the right moment to get a better grip on public spending. We are calmly passing a potential time bomb to future generations.”

Mr Macron reportedly intends to make cuts in social welfare, which accounts for half of public spending, and to force local authorities such as towns and regions, whose spending has risen faster than inflation, to rein in their finances.