PARIS, March 24 (Reuters) - Tax cuts or fuel price subsidies are not an effective response to the energy price shock triggered by the Iran war and risk fuelling inflation, France's Finance Minister
French Finance Minister Rejects Tax Cuts to Ease Iran War Energy Shock
Government Response and Economic Impact of Energy Price Shock
Minister's Stance on Tax Cuts and Subsidies
PARIS, March 24 (Reuters) - Tax cuts or fuel price subsidies are not an effective response to the energy price shock triggered by the Iran war and risk fuelling inflation, France's Finance Minister Roland Lescure told lawmakers on Tuesday.
Political Pressure and Budget Constraints
The French government has faced pressure from opposition parties to cut value-added tax on fuel or provide other support, but has little room to manoeuvre because its budget deficit is among the biggest in the euro zone.
Comparison with Other European Countries
The Italian government cut excise duties on fuel last week and Spain approved a package worth 5 billion euros to try to soften the economic impact of the Middle East conflict.
Economic Arguments Against Broad Support Measures
"When (energy) supply is constrained, supporting demand through subsidies or tax cuts does not act on the availability of supplies and ultimately only amplifies inflation," Lescure told the lower house's finance commission.
Any support measures eventually taken, he said, must be targeted and limited in time.
Current Government Strategies
So far, the government’s response to what Lescure called "a new oil shock" has focused on coordinating an international release of strategic oil reserves and policing pump prices for gouging. It has also offered loans, relief from payroll contributions and flexible tax deadlines for the transport, fishing and farming sectors.
France's Relative Exposure to Energy Prices
France, Lescure said, was less exposed to soaring oil and gas prices and better prepared compared with parts of Asia and some European neighbours.
Projected Economic Impact
Growth and Inflation Effects
A permanent $10 rise in oil prices would shave around 0.1 percentage points off economic growth, Lescure said. If prices remain around $100 a barrel – about $35 above pre-crisis assumptions – growth could be reduced by 0.3 to 0.4 points, while inflation would rise by around one point.
Interest Rates and Borrowing Costs
Vigilance Over Rising Interest Rates
He also called for vigilance over rising interest rates and said borrowing costs were higher, although France was finding financing without difficulty and had completed a third of its 2026 bond issuance programme.
(Reporting by Leigh Thomas; editing by Barbara Lewis)
