The new French government is considering tax increases on business and the wealthy

The new French government has begun to study options for taxing the wealthy and companies in order to reduce deficits while maintaining President Emmanuel Macron’s pro-business record.

Antoine Armand is the finance minister of France. He was a member of Macron’s centrist party until he was named to Prime Minister Michel Barnier’s cabinet in this month. Armand said that decisive action would be needed to address “one of our worst deficits” outside of extraordinary crises like the coronavirus epidemic.

The 33-year old told France Inter Radio on Tuesday that “we will work to match this seriousness.” “We are studying targeted levies against the wealthiest families.” Businesses are subject to targeted levies. . . ”

He added: “People with significant assets who don’t pay much tax, maybe they could contribute more.”

Armand and the new minister of finance, Laurent Saint-Martin, are preparing a draft budget for 2025 that will be presented to Parliament next month. Barnier will face his first major test in politics with the budget, as opposition parties have threatened to bring no-confidence motions if they don’t agree with Barnier’s government on tax and spending decisions.

Raising taxes would represent a significant departure from Macron’s economic policy, which has been a reduction of taxes for businesses and households since he first was elected in 2017. He has argued that this is the key to increasing growth and investment.

Macron’s successive government haven’t paid much attention to reining spending in, as they believed that higher growth would boost tax revenue. The approach has been successful in lowering unemployment, and encouraging companies to invest. However, the lack of fiscal discipline led to large deficits.

Brussels placed France under a excessive debt procedure, and demanded it present a plan for reducing deficits over the next few years. Rating agencies have downgraded France, and its borrowing costs have increased. The 2024 deficit is projected to be at least 5,6% of GDP, exceeding the goal for this year and the level of 5.5 percent from 2023 .

Investors worried about France’s budget deficit caused the French borrowing rates to converge with those of Spain for the first since the 2008 Financial Crisis. In his interview, Armand expressed his opposition to increasing the tax burden for “working people and middle class in the broadest sense”. His government has dodged the question of what they define as rich or middle class, so it is unclear who would be targeted by new taxes.

He said that tax increases should not “dampen the growth or job-creation”, which is a sign Barnier’s Government will at least attempt to adhere closely to Macron’s economic policies.

Goldman Sachs analysts noted that France’s tax burden was already “one of the highest in the world, with little room to increase”. In a client note, they said: “We expect the policy mix will be skewed towards reducing spending even though Prime Minister Barnier was open to using some revenue-raising methods.”

The economists suggested that there are several possible cuts that could affect the companies. For example, they suggest that generous subsidies for employers who hire apprentices and those that go to companies doing research and development be cut.

Left-wing parties have also called for a reintroduction of the wealth tax in France, which Macron abolished and replaced by a tax on property holdings.

Barnier stated over the weekend that “the most wealthy” and “very big multinational companies” that could contribute to the recovery effort of the nation, might be asked for an “exceptional” contribution.

In France, business executives have started to feel the shift towards higher taxes. Patrick Martin, the head of Medef, a business lobby group, said to Le Parisien on Tuesday that he is “ready to talk about tax increases for companies”. He also warned the government that any tax increases should not be made before real efforts are made to reduce public spending.