Macron’s Tax-Cut Binge for Yellow Vests Puts Finances at Risk

(Bloomberg) -- Emmanuel Macron’s attempt to quell the Yellow Vest protests with a splurge of tax cuts will contribute to a “worrying” debt increase that exposes France to future crises, the national auditor said.

The government has already said that Macron’s 11 billion-euro ($12.5 billion) package to boost low incomes will raise the 2019 budget deficit to 3.2 percent of economic output from a previously expected 2.8 percent.

In its annual health-check of public finances, the independent auditor Cour des Comptes said even that revised target is “fragile” as the economic outlook has soured and the government hasn’t given details of all its spending cuts.

“The high level of public debt in France and the significant level of the deficit leave only a small margin for maneuver, notably if there is an economic downturn or a crisis,” it said.

The warning highlights the risk Macron is taking with public finances that French governments have failed to repair as fast as other euro-area countries over the last decade. He’s betting recent economic resilience will continue into 2019 and the tax cuts will provide a boost.

The Cour des Comptes, however, said the government is blinkered to a weakening of European momentum. Using forecasts from statistics agency Insee, the auditor says growth would have to accelerate to its fastest in more than a decade to obtain the 1.7 percent expansion Macron needs in 2019 to meet his budget targets.

With such a weak outlook, the Cour des Comptes said the government must quickly present a new “exhaustive and sincere” budget bill. “A deep repair of our public finances is more necessary than ever,” the auditor said.

In a response to the report, the finance ministry said the increase in the deficit this year is “limited and exceptional.” The government won’t make any changes until April, when it’s due to present its multi-year budget proposal to the European Union.

To contact the reporter on this story: William Horobin in Paris at whorobin@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

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