France's Budget Plan Sparks Outcry Over Deficit-Reduction Measures

Photo : AFP

France’s new government has introduced a stringent budget bill for 2025, aiming to tackle the country’s substantial deficit through significant tax hikes and spending cuts. Prime Minister Michel Barnier, a conservative, described the public finance shortfall as a “sword of Damocles” that could lead the euro zone’s second-largest economy to the brink of collapse.

The proposed budget has sparked outrage across the nation, and a fierce debate in parliament is anticipated in the coming weeks, putting the government’s stability at risk. France has long faced challenges in managing high public spending, which is driven by generous social welfare programs, healthcare, and education. However, the tax burden has not sufficed to cover these expenses. For over two decades, the country has struggled to maintain its deficit below the European Union’s target of 3% of its gross domestic product (GDP).

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The COVID-19 pandemic exacerbated France's debt situation significantly, as President Emmanuel Macron implemented a “whatever it takes” strategy to save jobs and businesses. This included a massive partial unemployment program and subsidized childcare leave. Following the pandemic, Macron’s previous centrist administration committed to restoring the country’s finances, but budget overruns and lower-than-expected tax revenues led to an even larger deficit. The budget deficit for this year is expected to reach 6.1% of GDP.

Barnier, who was appointed in September after unexpected legislative elections, has pledged to reduce the deficit to 5% next year. The European Union has also exerted pressure on France to decrease its debt, and earlier this year, the EU initiated a formal procedure against France for excessive debt, a precursor to potential corrective actions for member states.

In light of the current financial landscape, Barnier announced a delay in the target date for achieving the EU’s 3% deficit goal from 2027 to 2029. This situation has negatively impacted France’s credibility in financial markets, resulting in increased borrowing costs. François Villeroy de Galhau, the governor of the Bank of France, likened the situation to a family living beyond its means, emphasizing the need for both expense reduction and increased revenue.

The government plans to implement a budget squeeze of 60 billion euros ($65 billion) for the next year. This includes raising taxes — a contentious decision in a country already known for its heavy tax burden. Proposed measures include new temporary taxes on approximately 24,000 wealthy households and on the profits of hundreds of large companies operating in France. Additionally, the government plans to raise taxes on electricity, air travel, and polluting vehicles.

Efforts to cut spending will include freezing state pensions for six months next year and reducing support for apprenticeships and subsidized contracts. France's generous social security programs may also face reductions, with proposed cuts to reimbursements for medical expenses and sick pay. However, the defense budget, which received increased funding due to the war in Ukraine, is expected to remain intact.

Critics, including left-wing opposition lawmakers and labor unions, have condemned the budget as “austerity,” arguing it disproportionately affects low-income families, apprentices, retirees, and small businesses. Hard-left lawmaker Eric Coquerel, who leads the Finance committee in the National Assembly, remarked that working and middle-class citizens are being asked to shoulder the financial burden once again. The far-left labor union CGT echoed these sentiments, while the CFDT, a more moderate left-wing union, warned of a significant deterioration in public services like education and healthcare.

Employers’ unions have also expressed concern, stating that the tax increases could lead to job losses as costs rise for businesses. The upcoming budget debate in the lower house of parliament is set to be contentious, particularly as the governing coalition lacks a majority. The National Assembly is divided among three major blocs: the left-wing New Popular Front, the far-right National Rally party, and Macron’s centrist allies who formed a coalition with the conservatives to secure governance.

Barnier’s proposed budget approach has generated discontent, even among centrists within his coalition, who argue that tax reductions are essential for maintaining France’s competitiveness. Opposition lawmakers are expected to propose amendments, while far-right critics have expressed disapproval of the planned concessions impacting lower and middle-income classes. With the government’s stability on the line, it may be forced to reconsider some of its proposed measures, as a failed budget vote could precipitate a political crisis.

To avoid being ousted by a no-confidence vote, Barnier may have to rely on the support of the far-right. Another option is to use a special constitutional provision to pass the budget without a vote, but this could also provoke a no-confidence motion with uncertain outcomes. The budget bill must receive approval by the end of the year.

Fitch Ratings recently downgraded France’s outlook from “stable” to “negative,” citing high political fragmentation and the challenges faced by a minority government in implementing sustainable fiscal policies.

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