Lifting the taboo on tax increases, according to the governor of the Bank of France
Banque de France Governor François Villeroy de Galhau called for budgetary truth during the presentation of France's economic forecasts for 2024-2026. While the French economy is showing signs of resilience with growth forecast at 1,1% for 2024, the governor warned of the impact of political uncertainty and the deterioration of public finances. According to him, it is urgent to find 100 billion euros over five years to stabilize the debt, in particular by reducing spending and considering tax increases.
The Banque de France forecasts economic growth slightly above initial estimates for 2024, rising from 0,8% to 1,1%. This slight improvement is partly due to the upward revision of the 2023 figures and foreign trade. However, Villeroy de Galhau remains cautious, noting that the economic recovery is being hampered by the wait-and-see attitude of households and businesses in the face of political and international uncertainties.
Worrying public finances
While inflation is slowing, providing a breath of fresh air for consumers, public finances remain under pressure. The public deficit is well above 3% of GDP, a level that the outgoing government wants to reach by 2027. However, the governor believes that such a goal in just three years would be unrealistic and would risk slowing growth. He recommends instead a five-year plan, while mentioning the need to lift "the taboo on tax increases", mainly for large companies and the wealthiest taxpayers.
Inflation, which reached 5,7% in 2023, is expected to fall to 2,5% in 2024 and 1,5% in 2025, in particular thanks to the reduction in regulated electricity prices. This slowdown in inflation should strengthen household purchasing power and boost consumption, the traditional driver of growth in France. On the other hand, a slight rebound is expected in 2026, to 1,7%, but this would remain below the 2% target set by the European Central Bank.
France's ambition to achieve full employment remains on hold. Although the unemployment rate is slightly increasing, reaching 7,5% in 2024, it is expected to start falling from 2026. According to Villeroy de Galhau, the key to full employment lies in better training workers and adapting skills to the needs of businesses, while continuing education and vocational training reforms.
Towards targeted tax increases?
As Prime Minister Michel Barnier considers a review of the tax system, the prospect of a tax increase is being debated. François Villeroy de Galhau is in favour of an "exceptional and reasonable effort" by large companies and the wealthiest taxpayers, as long as France has not returned to a deficit below 3%. However, he insists on the need to improve the efficiency of public spending, while slowing its growth rather than drastically reducing it.
The Governor of the Bank of France is calling for a sincere dialogue on the country's budgetary situation, advocating a balanced approach between spending cuts and tax increases. This is, he says, a necessary step to ensure long-term economic and budgetary stability, while avoiding slowing growth.
