France cut its budget deficit to 12-year low in 2018

March 26, 2019

By Leigh Thomas

PARIS (Reuters) – France cut its public sector budget deficit by more than expected last year, trimming it back to the lowest level in 12 years, according to data from the INSEE statistics agency.

The budget deficit came in at 2.5 percent of gross domestic product, the lowest level since 2006 and down from 2.8 percent in 2017, INSEE said on Tuesday in first estimates for France’s 2018 public accounts.

The 2018 deficit was also lower than the 2.7 percent foreseen in last year’s budget law and marked the second year in a row in which France had respected an EU limit of 3 percent, which Paris had flaunted for a decade prior to 2017.

Budget Minister Gerald Darmanin said the improvement vindicated the government’s strategy of reining in spending while also cutting taxes.

“We need to keep up the effort obviously because the public accounts remain in bad shape,” he added, speaking on French radio RTL.

The government expects the deficit to rise to 3.2 percent this year as a payroll tax credit scheme becomes a permanent tax cut, adding temporary pressure to the public finances.

With the deficit lower than expected last year, the national debt was steady at 98.4 percent of GDP.

Meanwhile, public spending, which is among the highest of developed countries, eased to 56.0 percent from 56.4 in 2017 while the overall tax burden on the economy slipped to 45.0 percent from 45.2 percent in 2017.

Slightly better than expected growth last year helped keep down the deficit and debt last year. INSEE said the economy grew 1.6 percent, better than the 1.5 percent it had reported in preliminary estimates.

Growth even held up at the end of the year at a quarterly rate of 0.3 percent despite a series of violent anti-government protests that weighed on business and consumer confidence.

The scrapping of a payroll tax for unemployment insurance helped boost households’ purchasing power, a key demand of protestors who say they get pinched by hefty taxes and a high cost of living.

Gross disposable incomes grew in the fourth quarter at the fastest pace 11 years, but household spending stagnated as consumers squirreled away the extra cash, pushing the savings rate to the highest level since the third quarter of 2012.

(Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta)

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