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(Bloomberg) — The French government is studying targeted taxes on the wealthy and companies that aim to help repair the country’s public finances without hampering growth, newly appointed Finance Minister Antoine Armand said.
His comments come as investors ditch French assets amid political turmoil, with the risk premium on French debt approaching its highest since the euro-area crisis.
Armand reaffirmed that the administration of Prime Minister Michel Barnier would not increase the tax burden on working people and the middle classes but said a minimum tax on wealth is “an interesting avenue.”
“Apart from one or two years of exceptional crisis in the last 50 years, we have one of the worst deficits in our history,” he told France Inter radio on Tuesday.
“The question we need to ask is how can everyone contribute intelligently given the gravity of the budgetary situation,” he said, adding that possible additional taxation mustn’t hamper growth and job creation.
The government is under pressure to find quick solutions to the country’s fiscal challenges and must present a budget bill for 2025 to parliament in the coming weeks. Barnier indicated on Sunday that he will make the country’s biggest companies and wealthiest individuals pay more tax in an effort to tackle the massive budget deficit.
A gauge of French bond risk — the gap between French and German 10-year yields — is at the highest since anxiety over the country’s politics was at its peak this summer. Citigroup expects it to widen to as much as 100 basis points next year, up from around 80 now. Meanwhile, French stocks have slid more than 6% from when President Emmanuel Macron called snap elections on June 9.
Patrick Martin, the head of French business lobby Medef, told Franceinfo radio on Tuesday that companies were ready to make “exceptional, temporary” contributions if necessary, though he said they must be targeted and proportional.
What Bloomberg Economics Says…
“If Barnier’s government can deliver a credible fiscal strategy that reassures markets and broadly complies with EU rules, it could bolster confidence in France’s economic direction. However, given the political fragility and stretching fiscal targets, the path ahead is fraught with risk.”
—Eleonora Mavroeidi (Economist). Click here for full INSIGHT
Tax-the-rich policies would mark a significant shift in France seven years after President Emmanuel Macron came to power pledging to repair France’s relationship with business. One of his first steps was to shrink the scope of the country’s wealth tax and put in a flat levy on capital, earning him praise from the business community and reproach from detractors who dubbed him the “president of the rich.”
Still, France remains the European country with the highest tax revenue as a share of economic output.
–With assistance from Benoit Berthelot.
©2024 Bloomberg L.P.