Austerity budgets, however much needed to return the focus of heavily indebted countries to fiscal sustainability, are never popular. It is easy for opposition parties to reject such budgets to retain their electoral support rather than responsibly advocating support for them, but this populism is not in the national interest.
This scenario, which we have seen play out in SA when opposition parties rejected the government’s policy of fiscal consolidation and debt reduction, repeated itself in France last week.
The far-right National Rally and left coalition the New Popular Front rejected the austerity budget of former prime minister Michel Barnier, which the latter pushed through without a vote by resorting to a provision in the constitution. The left and right then joined forces to vote for a motion of no confidence which brought down the government.
France has a national debt of more than €3-trillion which represents about 110% of its GDP compared with the EU’s requirement of 60% or less and a budget deficit of just more than 6%, well above the EU limit of 3%. Barnier’s budget proposal included a package of tax increases (€20bn) and cuts (€40bn) to spending across ministries and on welfare, health, pension and local government budgets.
Unpopular though necessary, pension reforms have also cost French President Emmanuel Macron political support. He will now have to appoint another prime minister but there is no guarantee that the same scenario will not be repeated, leaving the government of Europe’s second-biggest economy rudderless and the financial markets rattled.
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