France to Deliver 2025 Budget Amid Fiscal Challenges

France is preparing to present its 2025 budget on Thursday, outlining plans for 60 billion euros ($65.68 billion) in tax hikes and spending cuts to address a growing fiscal deficit.

Prime Minister Michel Barnier’s administration faces mounting pressure from financial markets and European Union partners to act after tax revenues fell short of expectations and spending exceeded projections this year. The government must carefully balance the budget squeeze, equivalent to two points of national output, to appease opposition parties that could veto the budget bill or unite to topple the government with a no-confidence motion.

With a significant lack of majority, Barnier and his allies in President Emmanuel Macron’s camp will likely need to make numerous concessions to pass the budget bill, which is not to be finalized before mid to late December. The far-right National Rally, whose support Barnier needs to survive any no-confidence motion, has already derailed a government proposal to delay a pension increase by six months to save 4 billion euros.

France to Deliver 2025 Budget Amid Fiscal Challenges

Members of Macron’s party are also reluctant to see the president’s legacy of tax-cutting undone. Former Prime Minister Gabriel Attal criticized the budget on Wednesday, stating, “The budget is light on reforms and too heavy on taxes.” Barnier has pledged to spare the middle class, instead targeting large companies with a temporary surtax and individuals earning over half a million euros annually.

Plans to restore a levy on electricity consumption to pre-2022-2023 energy price crisis levels will affect all taxpayers. The government aims to reduce the public deficit to 5% of GDP next year from 6.1% this year, a figure higher than most other European countries, as a first step towards meeting the EU’s 3% deficit limit by 2029.

While tax hikes will account for one-third of the 60 billion euro budget adjustment, the remainder will come from spending cuts, including 20 billion euros across various ministries and additional reductions in welfare, health, pension, and local government budgets. France’s borrowing costs surged after Macron called a snap parliamentary election, and his centrist party subsequently lost to a left-wing alliance. Financial markets will closely watch whether the budget can pass through parliament without significant dilution.

The European Commission will also scrutinize the budget, as France is currently under an excessive deficit procedure for violating EU fiscal rules. Domestic and international observers will closely monitor the budget’s success or failure, given its potential impact on France’s economic stability and compliance with EU regulations.


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