Le Pen’s Fiscal Plan for France Cannot Possibly Work, Will Voter’s Care?

Let’s explore Le Pen’s magic budget proposal in detail.

Let Me Have the Cake

Eurointelligence analyzes Le Pen’s plan in its report Let Me Have the Cake.

Marine Le Pen presented her counter budget with the air of someone who thinks she can reassure the markets with just some random headline figures while keeping her radical promises in place. On paper the Rassemblement National promises to reduce the public deficit from 5.4% of GDP this year to 3.7% next and 2.8% in 2028. Instead of austerity she talks about a recovery cure. And the ones to pay for the €136bn in savings necessary to get to those deficit figures are the bad people: tax evaders, migrants and the EU. One may wonder: why has no one thought about this before?

RN’s Macroeconomic Assumptions

• This recovery cure relies on a crucial assumption, that somehow it is possible to squeeze €100bn in structural adjustments in 2027 and 2028 and still double the economic growth rate from 0.9% next year to between 1.7 and 1.8% in the years 2028 up to 2030. She seems not to have imputed any negative growth effects resulting from a fiscal consolidation of that magnitude. As if money in the pockets of migrants or tax evaders is not spent in the French economy.
• The plan promises a primary surplus in early 2028, which would then be used to reduce public debt. Separately, she is proposing a referendum for a golden rule as an insurance for the markets. There are lots of unknowns on this path.

Exaggerated Claims

• The RN expects €37bn in savings from Social Security. The measures in question sound vague: reducing hospital costs and streamlining patient pathways is to save €8bn, combatting undue spending another €10bn, and fixing the current pension system another €15bn. One concrete measure, according to Les Echos is for the pension to increase the contribution period required to validate a quarter of a pension, from four weeks currently to twelve. The party estimates that this would compensate for Le Pen’s retirement age at 62 proposal with an estimates cost of €10bn. This figure has been challenged by other economists who see these more in the league of tens of billions.
• The second pillar for savings come from fighting tax fraud. This fiscal gimmick has a long tradition in Europe. Italian political parties have always relied on proceeds from the the fight against tax evasion to plug holes in their fiscal promises, but not quite on the scale of what Le Pen is suggesting. She expects to raise a stunning €33bn. Over previous budget years the government never successfully claimed back more than €15bn, even if AI and data mining help identify tax evasion through business audits and individual checks. One of the main measures the RN counts on is a withholding tax system for VAT, which is expected to boost revenue by €18bn. But estimates for VAT fraud vary between the government’s €6bn and INSEE’s €26bn. It looks as if the RN just chose a number that fit into their narrative.
• Additional revenues are to come from a fight against breaches of competition laws, in particular in public procurement. The imputed revenues are €13bn.
• The third pillar is migration. The RN is attempting to recoup €29bn from immigrants by 2031. Foreigners are to be excluded from the family and welfare benefits, estimated to bring in €18bn. The constitutionality of this measure will almost surely be challenged. Others estimate the benefits of a crackdown on benefits for immigrants at only €5bn. Another saving the RN is counting on is that with fewer migrants, security will improve, and that alone will save €2bn.
• The fourth pillar is a cut to France’s contribution to the EU by around €20bn. This is two thirds of its current contribution, including customs duties paid to Brussels. It would be an understatement to say that the EU is unlikely to agree to this. Unilaterally withholding funds would be the end of the EU and the euro. We would be intrigued to know how this measure would help to reassure the markets.

Questionable Revenue

• an increase in the tax on share buybacks to yield another €11bn, which would be 50 times more than currently.
• A promise of massive tax cuts for VAT on energy and food necessities that the RN has kept, costing €16bn and production taxes for €17bn.
• Genuine new measures and tax cuts add up to €69bn, against which the RN put a list of €136bn in questionable savings. A scenario where the deficit would rise under a Le Pen is not so far-fetched.

Will Anyone Care?

Will the public care at this point? The lack of awareness is stunning. All they want is change. As if the government can always find some magic money if only they look hard enough. Experience over the past decades has indeed been that France can get away with a lot. But the rise in French spreads suggest that this period may be coming to an end.

She also called on the ECB to cut interest rates. What can possibly go wrong?

No one ever cares about fiscal sanity in France or the US.

They all lie about growth, taxes, revenue, wars, and everything else.

France has gotten away with flouting EU budget rules but Greece didn’t. The reason is France is France. More accurately France is too big to bail.

But the EU has no love affair with Le Pen, so the crisis will surely come to a head in 2027, one way or another, no matter who wins.

French Budget Deficit Explodes Into a Major Debt Crisis and Riots

For further discussion of the fiscal rules France has ignored for decades, please see French Budget Deficit Explodes Into a Major Debt Crisis and Riots

The welfare state in France is coming unglued. An EU-wide crisis is coming.