PARIS (MktNews) - The French government's deficit could widen by some Ffr50 billion next year as slower growth cuts into corporate tax revenues, the business daily La Tribune estimated Tuesday. While the front-page, banner-headline article is based largely on deductions from existing fiscal plans, it illustrates the media attention on the government's dilemma in preparing next year's budget draft.
Having locked in a 0.5% rise in real spending and tax cuts of some Ffr40 billion in an election year, the government could see its deficit rise to Ffr236.6 billion to Ffr261.6 billion, compared to this year's target of Ffr186.6 billion, which is likely to be overshot, the newspaper concluded.
This would amount to a rise of 0.4 percentage points of GDP and thus jeopardize France's EMU Stability Program goals, which call for a decline in the public deficit to 0.6% of GDP, down from 1.0% this year and 1.3% in 2000.
However, the central Stability Program targets assume growth of 3% and are several tenths of a point higher in the case of growth slowing to 2.5%. Indeed, the government is assuming growth of 2.5% next year, after around 2.3% this year, the newspaper said.
Moreover, "high-level" sources expect rising surpluses in other public budgets, like the social security system and local governments, to limit the overall deficit overrun, La Tribune said.
This year's government deficit overrun could also be less than the projected Ffr25 billion revenue shortfall announced last week, thanks to budget "reserves," the newspaper said, citing sources' projections for a deficit of around Ffr200 billion. The government can tap semi-public financial institutions to supplement tax revenues, which was not necessary last year thanks to abundant revenues.
This leads analyst Dominique Barbet of BNP Paribas to believe that the public deficit can be held steady at 1.3% of GDP this year but could creep up to 1.4% next year, assuming GDP growth of 2.1% and 2.3%, respectively.
Jacques Delpla of Barclays fears next year's public deficit could balloon to 1.9% after a slight rise this year.
CCF analyst Nicolas Claquin expects this year's deficit to rise to 1.5% and ease to 1.4% next year, based on growth of 2.5% and 2.3%. At Morgan Stanley, Cristel Rendu sees the public deficit dipping to 1.2% of GDP this year and to 1.0% next year, assuming growth picks up from 2.5% this year to 2.8% next year.
More optimistic is Herve Goulletquer of Credit Lyonnais, who expects growth of 2.6% and 3%, respectively, to help reduce the public deficit to 1.2% of GDP this year and to 0.9% next year.