(Bloomberg) -- France’s budget deficit is slipping away from the government’s control, undermining President Emmanuel Macron’s credibility as an economic reformer capable of resolving the country’s fiscal challenges.

Official figures on Tuesday showed the gap between income and outlays expanded to 5.5% of economic output in 2023 from 4.8% in the previous year, far wider than the 4.9% the government planned for.

Growth in tax revenues slowed sharply as the euro area’s second-biggest economy stagnated and the pace of expansion in spending eased only slightly, according to statistics agency Insee.

The wider deficit is a blow to Macron, who had established a reputation for greater rigor since taking office in 2017, in contrast with years of French governments missing deficit targets. In his first five-year term, he bettered or matched his annual objectives on four occasions, and the one slip was caused by the pandemic.

The extent of the 2023 miss also calls into question Macron’s strategy of gradually repairing finances by relying on growth-enhancing overhauls, like loosening labor laws or raising the retirement age. Until spending ballooned during the Covid and energy crises, that approach meant he could avoid painful austerity measures or hurting businesses and households with tax increases. 

“The strategy is still there and it’s relevant, but it was probably forgotten that you can’t just count on nice things happening,” said Charlotte de Montpellier, ING’s senior France economist. “You can’t solve short-term problems by increasing growth potential.”

Shifting to tax increases — which the government opposes — or deeper spending cuts would be a risky political move as Macron’s party already trails Marine Le Pen’s far-right National Rally by around 10 points in polls of voting intentions ahead of European Parliament elections due in June. Moreover, Macron has promised to decrease taxes for lower-paid workers next year.

The Finance Ministry already announced €10 billion ($10.8 billion) of savings in February to try to get back on track to meet a deficit target of 4.4% of economic output this year. It has said at least another €20 billion will be required in the 2025 budget.

The government will give an update of the multi-year public finance plan it submits to Brussels on April 17, Finance Minister Bruno Le Maire said during a telephone briefing with journalists. Last year’s version of the stability program set a course for a deficit of 2.7% of economic output in 2027.

Le Maire said the government still aims to narrow the deficit below the European Union’s 3% limit in three years, when Macron’s presidency ends. He added that he is writing to state agencies to ask for more savings and has invited opposition lawmakers to a meeting later this week to discuss potential cuts in the 2025 budget.

“We are at a crossroads: Leaving debts and deficits to rise would be irresponsible, or we choose a path of determination, method and sangfroid,” the minister said.

Some of Macron’s allies have called on him to abandon a “no-tax-increase” mantra at the core of his pro-business presidency that has helped steer foreign investment to France. Francois Bayrou, a key centrist backer, said on Monday the topic should be debated in preparation for next year’s budget.

“Lawmakers have been looking at options and how we could have better balance in terms of fairness without damaging the image of France that attracts investment,” Bayrou told RTL radio.

Le Maire said he is open to ensuring a stricter application of levies on the windfall profits of energy companies, which generated much less revenue for the government than expected last year. But he said the government remains opposed to any tax increases and that the focus should be on cutting outlays in a country with the world’s highest rates of taxation and spending.

Adding to pressure on Macron’s government, ratings firms are taking a more critical view of France’s finances. In April last year, Fitch Ratings downgraded France to AA- from AA, and S&P Global Ratings has a negative outlook on its assessment.

Bank of France Governor Francois Villeroy de Galhau has also warned that the country’s struggles with high debt and deficits damage its credibility in Europe.

“For 40 years, it’s never been the right moment to get a better grip on public spending,” he said in an interview with French newspaper Le Figaro this month. “We are calmly passing a potential time bomb to future generations.”

(Updates with finance minister comments starting in ninth paragraph.)

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