RN’s
economic programme could be twice as costly as tax cuts by former UK premier
Liz Truss
https://www.ft.com/content/11dde16b-2998-49f4-91ad-d59923809a77
Sarah
White, Adrienne Klasa and Leila Abboud in Paris
Published JUN 13 2024
Marine Le
Pen’s big-spending, populist plans to help poorer and working class voters with
tax cuts and promises to lower the retirement age may have been easy to tout
when her French far-right party was in opposition.
Now the
Rassemblement National is waking up to the reality that those economic pledges
may be difficult to enact if it takes power following snap elections — and
could turn into a “Liz Truss-style” liability on the campaign trail.
Rivals
from President Emmanuel Macron’s centrist party have already pounced, warning
that a debt crisis such as the UK gilt market turmoil in 2022 could ensue if
they end up in a power-sharing situation with the RN, similar to the fallout
from the former British leader’s plans for billions of unfunded tax cuts.
Analysts
have even said it could be worse: the impact from the RN’s spending would be
twice as painful as what might have happened under Truss, blowing out France’s
deficit to economic output ratio by an extra 3.9 percentage points a year,
according to consultancy Asterès.
Markets
are already rattled by the idea of a far-right government running the
Eurozone’s second-largest economy with a protectionist and costly programme, at
a time when public finances are already under strain.
Since
Macron dissolved parliament on Sunday and called the snap two-round ballot on
June 30 and July 7 — a shock response to his party’s drubbing by the RN in
European elections — the gap between French and German government borrowing
costs has widened to its furthest level since October.
The RN
seems to have taken note. After railing against Macron’s unpopular move to
raise the retirement age to 64 last year, the RN’s rising star Jordan
Bardella appeared to backtrack on the party’s oft-repeated promise to reverse
the reform, which could add tens of billions in annual spending.
“We’ll
see,” Bardella slipped to RTL radio this week, when asked if such a plan still
stood, adding that Macron had saddled France with “pulverising” deficits.
Le Pen
has a host of other economic priorities aimed at relieving pressure on lower
and middle class voters, such as cutting taxes on electricity and fuel bills
and reducing VAT on a basket of essential food and household products.
Economists
have decried many of these as unfunded, incoherent and set to add to an already
ballooning deficit. An Institut Montaigne study put a price tag of more than
€101bn in extra spending a year to its programme in the run-up to the 2022
presidential election. The RN disputes that figure by saying the policies have
evolved since then.
If it
repeats the feat of racking up an unprecedented number of votes, the RN could
end up in a strong enough position for 28-year-old Bardella to be named prime
minister, forcing the business-friendly Macron into an uncomfortable
power-sharing agreement.
Even
after ditching ideas that had spooked markets a decade ago when Le Pen ran for
president, such as leaving the Eurozone or even the EU, RN leaders have
struggled to put forward a convincing economic programme.
In the
2022 presidential campaign they promised to exempt workers under 30 from income
tax to fight a brain drain, and nationalise French motorways to cut unpopular
high road tolls.
They also
want to establish a “national preference” for public procurement, which would
go against EU single market rules.
On
pensions, the RN once pushed for a retirement age of 60, but later suggested 62
for those who start work at a young age. Last year Macron raised it to 64,
prompting months-long street protests.
Funding
these policies would come, the RN has argued, from plans to curb immigration
and benefits that migrants receive in France, including financial support when
they are out of work or family aid to households without at least one French
parent. The many-layered levels of national to local government would also
be slashed.
“The
‘programme’ of the RN is a pure opposition platform, an aggregation of gifts to
those with legitimate or illegitimate complaints. It is not a programme,” said
Olivier Blanchard, the former chief economist at the IMF.
“Gifts
cost money. The money is not there . . . In any programme, saying that
financing will come largely from the elimination of fraud is a giveaway. So is
the notion that anti-immigrant measures will yield considerable revenues.”
One
foreign investor in France said a big concern for many was if an RN government
reversed Macron’s tax cuts and reverted to a form of wealth tax he abolished.
Market
jitters wiped some €10bn off the collective values of French banks BNP Paribas,
Société Générale and Crédit Agricole, seen as proxies for the economy, in the
two days after Macron called the vote. Highway concession holders took a hit,
as did energy companies such as Engie, big on the wind farms that the RN wants
to dismantle.
One
senior official in Macron’s government said the strategy against RN was clear:
“scare people” on the economy.
“What
would happen to your pensions? They would no longer be able to pay them. What
would happen to your mortgages?” Macron told a news conference on Wednesday.
But the
far-right party has so far shrugged off the backlash. “We don’t need the
approval of people who are inept themselves! They have racked up colossal
debt,” the RN’s secretary-general Renaud Labaye told the Financial Times last
month.
Le Pen
has sought to turn the tables on Macron for his poor management of public
finances, including in a column in the business daily Les Echos earlier this
year in which she called France’s surging government debt situation a national
emergency.
Under
Macron, the deficit blew past its target to hit 5.5 per cent as a share of
economic output last year, beyond the expected 4.9 per cent as tax revenues
fell short of government expectations.
After big
spending programmes to shield the economy from the Covid-19 pandemic and a
European energy crisis, ministers have pledged cuts to try and get France on
track for an EU target of 3 per cent by 2027, although analysts and credit
rating agencies such as S&P Global are still cautious.
From the
business elite in Paris to smaller companies, worries about the RN’s plans are
widespread, even among some who argue the party is sometimes treated
unfairly.
“Their
economic policy is dramatically bad. Advocating economic nationalism is not
extremist, it’s not dangerous, it’s not particularly racist, it’s just
economically a bad idea,” said Sophie de Menthon, the head of Ethic, a French
small business lobby group.
Not all
analysts are convinced that hammering the RN’s shortcomings on the economy will
resonate, given how appealing the far right’s core message is: helping strained
household budgets.
Driving a
car and heating a home were becoming “luxury products”, Bardella said this
week, highlighting a flagship promise to cut value added tax on fuel,
electricity and gas from 20 per cent to 5.5 per cent.
“They’re
surfing on something a lot of people do not seem to understand, that there is
something irrational in the vote for the RN,” said Jean-Yves Camus, a political
scientist with the Fondation Jean Jaurès.
“The
question is not so much about which is the most competent [party] . . . people want to be able to dream a
little, to be told things can change.”
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