The spendthrift Macron will run into harsh fiscal reality

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The spendthrift Macron will run into harsh fiscal reality
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His inclination is to promise more spending now and postpone restrictions for much later.

Emmanuel Macron will face tough decisions if he begins to implement the program he has planned for a second term. With a 10-point lead in the polls and after Wednesday’s debate with his far-right opponent, Marine Le Pen, the French president now needs to attract a part of the nearly 8 million voters who elected leftist Jean-Luc Mélenchon. in the first round. He also needs to muster a majority in the parliamentary elections in June.

For now, Macron tries to pretend that he can do everything. But, look where you look, he sees harsh political balances. The need to invest and spend will collide with the reality of France’s financial situation.

For example, inflation. Like all Western leaders, Macron faces rising food and energy prices. France, a service-focused economy, was less affected by supply chain shortages than other countries last year. And it is partially shielded from the impact of rising oil and gas prices due to its reliance on nuclear power. However, inflation is running at 4.5% a year, which has prompted Macron to impose a cap on household and business energy bills. But that, in turn, runs counter to his and Europe’s goals of promoting a greener future, which would require rising fossil fuel prices.

A better way to cushion the blow would be to ensure that transfers go to low-income households, who are disproportionately affected by rising energy costs. But there is a fiscal compensation. If Macron finances those transfers with more loans, it will increase France’s public debt, which has exceeded 112% of GDP and is higher than 95% of the euro zone.

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It could also choose to finance social transfers by raising taxes. But France is already the top taxed European economy, with the government taking more than 51% of GDP in tax revenue, even though Macron has lowered tax pressure by 2 percentage points since 2017.

If elected on Sunday, Macron will have to decide which voters to court to build a parliamentary coalition majority. Conservative voters lean toward fiscal restraint. Those on the left prefer his promises of investment in social services and the ecological transition. Macron’s own leanings mean he is likely to promise more spending now and postpone fiscal tightening for much later. And French voters can lend themselves to that fix.