Macron’s Government Plans Politically Risky Welfare Cuts

(Bloomberg) -- French Prime Minister Gabriel Attal pledged more cuts to unemployment welfare, risking a backlash ahead of European elections as he seeks to tame a runaway budget deficit and press on with President Emmanuel Macron’s economic-reform agenda.

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The government will instruct businesses and labor unions that manage France’s unemployment insurance to negotiate the details of changes to be implemented in the fall, Attal said in an interview on TF1 television.

He said the overhaul could combine several modifications, such as cutting the maximum duration of welfare to 12 months from 18, lengthening the period of work required to qualify for benefits, and reducing payments over time.

“Our objective is to reach full employment,” Attal said on Wednesday. “My aim isn’t to pick on individuals, it’s to shake up a system to incentivize returning to work.”

Macron has centered his leadership of France on economic policies designed to overcome decades of weak growth, high unemployment and rising public debt. Until recently, he could claim some success as the jobless rate briefly touched a 40-year low and economic growth outperformed compared with peers.

But the economy is succumbing to a broader European slowdown, unemployment has started to rise, and the budget deficit has widened well beyond the government’s objectives.

Overhauls of labor laws and jobless benefits have always been at the heart of Macron’s economic policy. As a minister in Francois Hollande’s government he already championed changes to regulations to ease hiring and firing, a reform-drive he pursued with decrees shortly after his election in 2017. When re-elected in 2022, Macron pledged full employment in France by the end of his second five-year term.

Yet reviving the approach now is a risky political move ahead of European Parliament elections in June, with Macron’s Renaissance party trailing well behind Marine Le Pen’s far-right National Rally in polls of voting intentions. She has already identified unemployment welfare as a key battleground, saying Macron’s approach is “destructive” and defies common sense.

The French president’s bet is that less generous welfare will push job-seekers to take work, while stripping back legal complexities designed to protect employees will encourage companies to hire.

France’s unemployment insurance system is similar to European peers in terms of generosity of replacement incomes for average earners. However, a shorter period of work is required to qualify for benefits, and checks for people who had highly paid jobs can be as much as €290 a day gross.

Macron’s government already made more changes to how welfare is calculated in 2021, including raising the minimum period of work to be eligible and introducing a scale to decrease benefits after seven months of claims. They also introduced penalties for companies that frequently make layoffs, over-burdening a system that is financed by employer and employee contributions.

The effective daily income of job-seekers has fallen since those changes, and in February last year another government decree decreased the maximum period for claiming when the labor market is strong and unemployment is low.

Attal said he is also working on ways to cut levies that discourage employers from raising salaries above the minimum wage.

“We currently have a system that means that there’s little point for anyone to increase pay,” he said.

As well as flagging further labor reforms, the prime minister repeated that the government will prepare spending cuts in the coming months after official data earlier this week showed the budget deficit widened to 5.5% of economic output last year. The Finance Ministry had targeted 4.9%.

The extent of the miss challenges Macron’s strategy of gradually repairing finances by relying on overhauls like the labor reforms to drive economic growth.

While Attal said the government will not raise taxes on the middle classes or companies, he said he is open to any proposal from lawmakers to ensure the deficit falls below 3% of economic output in the next three years.

“The situation is serious,” Attal said. “It’s a question of cutting France’s debt because a country that is over-indebted is not a free country.”

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