Businesses worry Macron’s reform push will stall

In the sumptuous Palace of Versailles, President Emmanuel Macron this week hosted 180 bosses of multinationals such as Disney, Siemens and JPMorgan at his annual Choose France summit aimed at courting foreign investment.

The confab has become a symbol of how Macron, a former investment banker, has sought to make France more business-friendly since his 2017 election by reducing corporate taxes, making it easier to hire and dismissal of workers and simplifying regulations.

But as his second term begins, the president who has said he wants France to shed its statist and tax-heavy reputation to become a ‘start-up nation’ has a weakened political hand after losing his majority parliamentary. Faced with emboldened far-left and far-right parties, he will no longer be able to push through economic reforms largely unhindered.

The economic outlook is also more challenging because inflation, which is around 6 percent, is hitting consumers and businesses, just as the government has less ability to spend to ease their pain than it did during the Covid-19 pandemic. The cost of servicing France’s large public debts has started to rise with interest rates, prompting a stark warning recently of the national auditor.

The cocktail of risks has France’s business elite worried about Macron’s ability to implement the rest of his economic program without provoking protests like the yellow vests movement in 2018. Airport and railway workers have already gone on strike for higher wages, and far-left leader Jean-Luc Mélenchon is planning protests against the rising cost of living.

Finance Minister Bruno Le Maire has been adamant that the government will move forward. When asked if Macron’s era of pro-business reforms was over, he said in an interview: “It has to continue. Not everything goes through legislation, so we will use all the tools at our disposal to continue to support wealth creation in France. . . and for that, we need business-friendly reforms.

The Mayor said he believed the centrist alliance in government would be able to muster the votes it needed to pass laws by compromising with the moderates. This is far from certain, however, given that France has less of a tradition of such political compromises than elsewhere.

An upcoming bill to help mitigate the impact of inflation on citizens may not garner enough votes to pass, or see its €20bn price tag balloon once the opposition adds amendments. “There is a real risk that there will be no more major economic reforms,” ​​said a banker.

There are still plenty of things on Macron’s to-do list. Reforming the costly pension system by raising the retirement age from 62 to 64 or 65 is essential to improve public finances. He has also pledged to cut “production taxes” by €7 billion a year – taxes based on turnover, staff or buildings rather than profits.

Behind the scenes, however, there are signs that politicians and business leaders are worried. An executive of a large private equity firm said he was asked by a finance ministry official at a recent dinner if the company would continue to invest in France. “He told me that the government would not be able to do as much for us as in the past,” says the investor.

At a business conference in Aix-en-Provence over the weekend, business leaders questioned whether the government could handle the political and economic challenges ahead. “They seem confident – maybe too confident,” said a president of an industrial company.

After all, the French still tend to be business wary. Companies from LVMH to Sanofi are being criticized for paying dividends, and a recent government decision to fund a new chip factory that will create 1,000 jobs has been dismissed as a handout. Macron himself is under fire this week for helping Uber expand in France after a investigation by the Guardian newspaper and other media groups.

The government is also under pressure from the opposition to impose a so-called windfall tax on companies such as oil major TotalEnergies which have made record profits since the Russian invasion of Ukraine. Far-right leader Marine Le Pen has called for “war profiteers” to be taxed on their “super-profits”.

The Macron government did not reject a windfall tax outright, although Le Maire said he wanted to wait until the end of the year to judge whether it was necessary. While it may be politically popular, a windfall tax would “take us further away from our political DNA, which is to cut taxes and support entrepreneurs,” he said. It could also make CEOs attending Choose France think twice.

[email protected]

Comments are closed.