Macron Unveils Budget Meant to Bolster Influence in EU -- Update

By William Horobin Features Dow Jones Newswires

French President Emmanuel Macron's government presented its first budget Wednesday, the centerpiece of his plan to bolster France's leverage within the European Union by shrinking the state and freeing up the slow-growing economy.

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The 2018 budget foresees reducing the deficit by slashing spending in areas long-protected by the state, including housing, and government-sponsored jobs programs.

In an effort to encourage risk taking and growth, Mr. Macron's government said it would cut wealth and capital taxes and shift the burden of other taxes away from workers and businesses to retirees and property owners.

Investors and European policy makers are watching closely, as Mr. Macron has cast his fiscal policies as bargaining chip in his push for a more integrated Europe. French officials say the moves will give him the credibility to push a skeptical Germany to sign up to his demands, including a shared eurozone budget that he argues would shelter it from shocks.

"It's time to change our logic and way of thinking. It's time to have a budget that aggressively encourages growth and jobs," economy and finance minister Bruno Le Maire said.

The plan aims to reduce France's budget deficit to 2.6% in 2018 from 2.9% this year, putting France on a path officials say will lead the country out of EU procedures for monitoring deficits over 3% of economic output.

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Balancing France's budget equation has become an increasingly difficult task in recent months.

Mr. Macron faced a backlash over the summer when the government announced immediate cuts to bring France's budget within the EU limit. The tensions boiled over into a public spat with the head of France's armed forces--who later resigned--and Mr. Macron's approval ratings sunk.

The 2018 budget plans has drawn fire from Mr. Macron's rivals on the left and the right, and even from pensioners who are organizing demonstrations in Paris Thursday.

Former finance minister Michel Sapin, who served alongside Mr. Macron in the government of then-president François Hollande, said the cuts to wealth and capital taxation were particularly unjust.

"These tax measures will have a brutal and sudden effect on aggravating inequality we had managed to decrease," Mr. Sapin told Paris Match magazine.

In the face of protest, the government must also finance Mr. Macron's election pledges in areas ranging from reducing class sizes to bolstering French security forces anti-terror efforts.

The 2018 budget foresees an increase in military spending, as well as to the justice and education budgets.

The government must also fund Mr. Macron's promises to cut local residency taxes, corporate taxes, payroll taxes and some wealth taxes. Overall, taxation will be EUR10 billion ($11.7 billion) lower at the end of 2018, with households benefiting slightly more than business, the government said.

To help finance all the promises, the 2018 budget foresees making cuts to labor and housing policies, which government officials say are inefficient and costly.

The labor and employment budget will fall by over EUR1.5 billion next year as the government cuts funding for state-sponsored job programs by 40%. The budget will also cut subsidies for tenants by EUR1.7 billion.

Mr. Macron is also raising taxes on diesel and gasoline, as well as a widespread tax that hits all revenues.

Taking into account cuts to welfare taxes on salaries, net wages will rise in 2018 but pensions will fall, the government said.

Write to William Horobin at William.Horobin@wsj.com

(END) Dow Jones Newswires

September 27, 2017 10:19 ET (14:19 GMT)