On Thursday, October 10th, Prime Minister Michel Barnier went through the tricky exercise of presenting his government’s budget for France for 2025, against the backdrop of a serious budgetary crisis and worsening debt. In order to achieve the objective of cutting spending by just over €40 billion out of an estimated overall budget of €60 billion, tax increases and cuts in public spending were announced, triggering hostility from the Left and scepticism from the Rassemblement National.
Two plans were presented to MPs on 10 October by Michel Barnier and his team. The PLF, or Finance Bill, and the equally crucial PLFSS, or Social Security Financing Bill. After an expected slippage to 6.1% this year, the aim is to bring the public deficit down to 5% by 2025, in order to return to below the 3% limit tolerated by Brussels by 2029.
Public spending is set to fall by €41.3 billion. To achieve this, the government plans to make cuts in state employment. 4,000 jobs are to be cut in the national education system, causing indignation among the teachers’ unions, who are calling it a “monstrous bloodletting” and an “absolute disgrace.” But the cuts are justified by the overall reduction in pupil numbers. It should be remembered that national education is the largest budget of the French state, with a budget of €65 billion, compared with €50.5 billion for the army—with results in constant decline, and teachers being among the lowest paid in Europe.
Other ministries are also affected, such as the Budget and Labour. Despite protests from the Left, the job cuts in the civil service remain very modest. In total, the Finance Bill (PLF) plans to reduce the ranks of the civil service by 2,201 positions, out of a total workforce of 2.4 million. The regal ministries of the army and justice will see their staff numbers increased.
Other cost-cutting measures include postponing increases in retirement pensions; controlling reimbursements paid by the social security system; reducing tax exemptions for businesses; reducing transfers to local authorities, and cutting environmental aid. Some of the measures announced remain vague and have not been detailed, but the Left is denouncing a policy they see as targeting “education, health, and ecology.”
In addition, raised taxes are indeed planned, despite the opposition expressed by members of the former government team Gabriel Attal and Gérald Darmanin. A dozen or so measures should raise around €19 billion. The first target: the wealthiest French people via a “temporary differential contribution on very high incomes.” The government wants to impose a minimum tax rate of 20% on households whose taxable income exceeds €250,000 for a single person with no dependent children and €500,000 for a couple. The scheme is due to run for three years. In a way, it is a question of reviving the Wealth Tax, which was abolished by Emmanuel Macron, but which is coming back in a roundabout way.
More broadly, the income tax scale will be completely overhauled, with indexation for inflation.
Tax rises will not be concentrated on high incomes. One measure that has caused particular controversy is the increase in tax on electricity, which will affect all households—a measure that is unlikely to encourage consumers to switch to electric vehicles, EDF points out.
On the business side, an exceptional contribution will also be introduced for companies generating very large profits, with a turnover in excess of €1 billion. There are very few of these in France.
A specific measure should concern maritime freight companies. In reality, only one ship owner will be affected by this measure. The tax will apply only to CMA CGM, a Marseille-based group that is the only one to exceed the turnover threshold of one billion euros. According to Le Figaro, the shipowner at the head of the group, Rodolphe Saadé, had anticipated such a measure at the end of September. “If the government decided to impose an exceptional solidarity contribution on large companies, we would be there,” he said.
For businesses as a whole, energy tax hikes and the freezing of production tax cuts will be added.
The Left is brandishing the term ‘austerity.’ The Greek example is on their mind. Socialist MP Philippe Brun, vice-chairman of the Finance Committee, denounced an “austerity project with clear cuts in the most important budgets of our public services.” “Above all, we must not fall back into the spiral of austerity that will destroy growth, jobs, and our economy,” he warned.
The Rassemblement National (RN) is also critical, but for different reasons. For Marine Le Pen and Jordan Bardella’s party, the problem lies in the new government’s fundamental inability to change the deep-rooted habits that have led France to its current deficit over the past fifty years. RN MP Jean-Philippe Tanguy denounced a finance bill that does not call into question the major balances between revenue and expenditure, and even plans to increase the burden on many of the most modest households: he can see “no break with the mismanagement of the last 50 years.”
On the sidelines of the government’s presentation of the budget, Agence France Trésor, which is responsible for the debt, announced that France will raise a record €300 billion in 2025 to finance its spending and renew its previous debts, after €285 billion in 2024. France will therefore be borrowing an unprecedented amount on the financial markets, which should correspond to 10% of its GDP for the coming year.
To sum up, the new government has taken note of France’s catastrophic financial position, for which Emmanuel Macron’s presidency is partly responsible, but above all has brought to a close a period of several decades of budgetary mismanagement that no one, Right or Left, has ever set out to reform. The remedies announced may appear seductive on paper, but the fascination with tax raises and the weakness of the savings made, with no scope and no overall plan, leave a taste of unfinished business and will not allow us to escape a fierce political battle in which the government could be left holding the bag.
