2019: Macron to buy off the gilet jaunes

We said:

Massive French protests have forced Macron to U-turn on fuel taxes. It is unclear how much more will be necessary to buy off protestors. Investors should not be too concerned by the consequences of the protests for Macron’s structural reform programme. It is in the areas of fiscal and tax policy that public discontent might force changes.

The government is so far attempting to reduce the tax burden and the deficit in tandem, while shifting the tax mix away from labour charges. The pain resulting from this process – and particularly from the front-loading of compensatory tax rises – has been a major factor behind the protests. And this is where any likely change of course will come. Although Macron has been adamant he will not reverse changes he has already made – such as the important reduction in payroll taxes - but the pace of fiscal consolidation could be slowed, or plans for future tax changes (such as the staggered fall in corporation tax over the coming years) could be altered.

Outcome:

Three days after we published the French government announced a €10bn+ package of fiscal easing to support lower- and middle-income workers through a combination of cancelling tax increases, new tax cuts and an increase in the government bonus scheme for the low-paid. A further €5bn programme of tax cuts was announced in April 2019.