Macron’s revolution is a long time coming

If you thought Emmanuel Macron would use his 2019 budget to rethink his increasingly unpopular presidency, think again. The French leader is doubling down on the pro-business agenda that he’s been pushing through since taking power last year.
There’s nothing wrong with this. Macron’s pitch to voters was that he would speed up growth by cutting the role of the state and helping companies become more competitive. He’s merely trying to deliver on this promise.
Yet while the direction of travel is clear, the speed of change is too slow. In the short-term, the budget won’t do much to boost France’s sub-par growth or sharply reduce an unemployment rate above 9 percent. It also risks reinforcing Macron’s image as “president of the rich.” Ordinary French people will barely feel the difference.
The budget includes nearly 25 billion euros in tax cuts, with about 19 billion euros going to employers and 6 billion euros to families. While this sounds like a lot, much of the
reduction comes from one-off measures that will largely favour business. The permanent changes are more modest, including a cut in corporation tax and in the cost of hiring low-paid workers.
Macron has vowed to keep the public finances in order, which makes sense when public debt stands at nearly 100 per cent of gross domestic product and the economy is growing. This leaves little room to cut taxes by raising the deficit. Overall, headline borrowing will rise from 2.6 percent of GDP to 2.8 percent, but in fairness this is down to the one-off transformation of a tax credit into a tax cut.
The government could have found more money to boost competitiveness by cutting deeper into day-to-day outlays. However, it chose an uncomfortable half-way. Public spending will
increase by 0.6% of GDP.
The budget is part of Macron’s three-pronged attempt to reboot the French economy: Cut taxes, rein in spending and restrain the budget deficit. The aim is to reduce the tax wedge and reduce corporation tax to 25 percent by 2022. All of that should make French companies more competitive, boost investment and reduce unemployment.
But the budget adjustments are much too small to make a big difference. All the one-off measures and the limited action on spending mean that improvements for French companies are still limited and temporary. While there’s a change of philosophy from the deeply unexciting presidency of Francois Hollande, the revolution is yet to come. In the absence of a sustained economic acceleration in the euro zone, which is unlikely, France will struggle.
And even though he’s treading carefully, these moves will do little to make Macron more beloved by the left-behind. Indeed, his problem is as much perception as substance. Two weeks ago, the president launched an 8 billion-euro anti-poverty plan, aimed at putting the unemployed back on the job ladder. But these measures risk being ignored so long as the economy doesn’t accelerate.
Macron doesn’t really need to change his economic agenda, more just speed it up. If he manages to attract investment into France, that will boost growth and political support. Meanwhile, more humility would help. The man who compared himself to Jupiter needs to reconnect with ordinary mortals.

— Bloomberg

Lionel Laurent is a Bloomberg Opinion columnist covering finance and markets. He previously worked at Reuters and Forbes