(Oct 2): French President Emmanuel Macron endorsed a temporary tax on the country’s largest companies, supporting his new government’s strategy even as it marks a shift from his pro-business stance.
 
The French government on Wednesday announced plans of around €60 billion (RM277.06 billion) in spending cuts and tax hikes next year in an effort to claw back a widening budget deficit and bolster investor confidence in the country.

Just under €20 billion will be generated by temporary tax increases for wealthy individuals and large companies, as well as increased green taxation.

“Having an exceptional taxation on corporates is something which is well understood by large companies if this is for one year, given the level of effort which should be made,” Macron on a panel discussion with Bloomberg’s Stephanie Flanders at the Berlin Global Dialogue. “But it should be limited, we have not to forget the reality of our economy, the reality of our competitiveness and our position.” 

A massive fiscal adjustment is required to bring France’s budget shortfall to 5% of economic output from around 6.1% this year, government officials said in a briefing to journalists on Wednesday, speaking on condition of anonymity in line with internal rules.

Prime Minister Michel Barnier said he is resorting to tax increases because France’s debt challenge is pushing the country to a precipice. The political instability and fiscal uncertainty has prompted investors to dump French assets, pushing up the extra yield on French debt over safer German peers close to highs not seen for a decade.

Investors have been dumping French assets in recent months, with the risk premium on the country’s debt approaching its highest level since the euro-area crisis.  

Investors now seek an extra 79 basis points (bps) to buy French 10-year securities instead of German bunds — up from around 50bps before the vote, but down from as high as 86bps at the height of the political turmoil.

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