Companies in France are bracing for a salvo of tax rises and higher labour costs in a deficit-cutting budget that risks undermining seven years of pro-business policies pushed by President Emmanuel Macron.
Conservative premier Michel Barnier, who leads an uneasy power-sharing government with Macron’s centrists, on Thursday unveiled budget proposals that include tax increases on business and wealthy individuals in a reversal of the president’s agenda that signals his diminishing political influence.
French companies and foreign investors are bracing for further policy reversals and government belt-tightening that may damage fragile growth.
One banker who declined to be named said the unstable business climate had already caused them to lose a deal in which a European company was circling a French one.
“The feedback from the board was ‘Is France still business-friendly?’” the banker said. “The real problem is the uncertainty. We’re struggling to tell clients what will happen next.”
For Barnier, the next steps are trying to pass an already unpopular budget despite having no parliamentary majority. Describing France as on the “precipice” of a financial crisis, Barnier said the budget was harsh medicine needed to cure a spiralling deficit that will reach more than 6 per cent of national output by the end of the year, far above the EU ceiling of 3 per cent.
Both Barnier and his finance and budget ministers have repeatedly insisted that they do not want to damage France’s success under Macron in attracting foreign investment, boosting growth and lowering unemployment.
But their approach of leaning heavily on tax increases to plug the deficit hole is a major break with Macron’s economic strategy. For example, the new budget will delay a long-promised cut in production taxes, which groups pay on their activities regardless of whether they are profitable; experts have long said production taxes dent French competitiveness since they are higher than elsewhere.
Macron has limited leverage to stop Barnier from picking apart his economic policies since his party lost snap elections he called over the summer. The premier now runs domestic affairs, while the president focuses on foreign diplomacy.
Companies with sales above €1bn will also have to pay a two-year “exceptional” tax that aims to raise €12bn, but groups of all sizes will be affected by eliminating tax incentives for those who employ low-income workers and apprentices.
Another proposal to phase out tax exemptions for employers of low-salary workers will in effect raise labour costs — yet another reversal of Macron’s approach that the Medef employers’ group condemned as “brutal” and ill-conceived.
“In the end, this is going to destroy several hundred thousand jobs in sectors that create a lot of jobs across France like in cleaning services, cafeterias and social aid,” Patrick Martin, the head of Medef, told business newspaper Les Echos.
Beyond taxes, executives and banks in Paris also fear that a shift to downbeat messaging will be enough to damage investment plans after years in which Macron was the cheerleader-in-chief for French business.
Xenia Legendre, a tax specialist and managing partner at Hogan Lovells in Paris, predicted that companies would not close operations in France because of proposals in the new budget, but could curtail future investments. “They might prefer to invest elsewhere in the next couple of years,” she said.
Since his election in 2017, Macron has pushed through pro-business policies, making it easier for companies to hire and fire workers, abolishing a wealth tax and reducing the corporate tax rate from 33 per cent to 25 per cent. About €60bn in tax cuts were passed, and Macron stuck by a promise that there would be no tax rises on his watch.
The “Macron effect” has worked particularly well in helping to lure traders to Paris after Brexit, with executives at the likes of JPMorgan Chase and Morgan Stanley saying his overtures had helped beat competition from other financial centres such as Frankfurt. France topped foreign direct investment in Europe for five years running, according to consultancy E&Y, and unemployment has dropped significantly.
Yet Macron’s successive governments paid little attention to curtailing government spending since their bet was that higher growth and labour force participation would solve France’s deficit issues. When the Covid-19 pandemic hit in 2020 followed by the inflationary shock of the energy crisis two years later, the government spent heavily to blunt the impact on companies and households.
One former minister from Macron’s party conceded that some tax rises were needed to narrow the deficit, but said they should be temporary and limited in scope.
“If Michel Barnier unwinds Macron’s business-friendly policies then the president’s legacy will be swept away. All that is left of his original promises in 2017 is the economic progress — without it, nothing is left,” the person said.
For his part, Macron has no intention of letting his economic record be dismantled, said people familiar with his thinking. On a trip to New York in September, Macron met with Wall Street executives including Blackstone boss Stephen Schwarzman and executives from Goldman Sachs and Morgan Stanley, to convince them that France was still open for business.
“The goal was to also remind them why France needed fiscal consolidation. These are people who buy our debt too so that can be reassuring,” an Élysées official said of those talks.
Macron grudgingly backed the idea of a one-off tax on big companies. “But it should be limited — we have not to forget the reality of our economy, the reality of our competitiveness and our position,” the president said.
Macron also still plans to hold his “Choose France” summit at Versailles next year — the eighth one — in which he hosts global chief executives.
Faced with the tax increases in the 2025 budget, France’s corporate leaders have for now kept a low profile.
Some such as shipping billionaire Rodolphe Saadé, head of Marseille-based container shipping giant CMA CGM, have even said they are prepared to do their bit — a sign of a broader mood of resignation among business chiefs who believe they could have had it worse. CMA CGM now faces a new tax on maritime shipping companies designed to raise €500mn.
“French bosses know the past 10 years have been pretty good for them,” said the chair of one company.
Data visualisation by Janina Conboye
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