On Thursday, October 10, 2024, the French government presented its 2025 budget, which includes unprecedented public spending cuts and tax hikes. The draft budget aims to reduce the country's fiscal deficit by 60 billion euros ($65.68 billion), a move aimed at addressing the growing financial strain on France's economy.
The budget proposal, led by Prime Minister Michel Barnier, has been met with significant pressure from financial markets and European Union partners. This year, tax revenues underperformed expectations while expenditures surpassed them, necessitating drastic measures to align with EU fiscal regulations.
Key Components of the 2025 Budget
1. **Tax Increases**: One-third of the 60 billion euro reduction is expected to come from tax hikes. The government plans to reinstate a levy on electricity consumption to pre-emergency levels following a reduction during the energy price crisis of 2022-2023.
2. **Expenditure Reductions**: The remaining savings will stem from cuts across various ministries, including welfare, health, pension, and local government expenditures. These reductions aim to decrease public deficit from 6.1% of gross product (GDP) this year to 5% next year.
3. **Targeting High-Income Earners**: The government has announced that it will direct a temporary surtax at large corporations and individuals earning over 500,000 euros annually. This move is intended to shield the middle class from the brunt of these fiscal adjustments.
Challenges and Reactions
The proposed budgetary adjustments face significant challenges in parliament. Opposition parties have the power to block the budget proposal and could unite to bring down the government through a no-confidence vote.
The far-right National Rally has already demonstrated its influence by thwarting a government plan to delay a pension increase by six months, which aimed to save 4 billion euros. Members of President Emmanuel Macron's party are also reluctant to see his tax-cutting legacy compromised.
Former Prime Minister Gabriel Attal stated on Wednesday, 'The budget lacks reforms and is overly focused on taxes.' This sentiment reflects the complex political landscape surrounding the budget's passage.
European Commission's Stance
France's borrowing expenses have soared following Macron's decision to call a snap parliamentary election, resulting in a loss for his centrist party to a left-wing coalition. Financial markets are closely monitoring whether the budget can pass through parliament without significant alterations.
The European Commission has placed France under an excessive deficit procedure due to its failure to adhere to EU fiscal regulations. The budget will be subject to evaluation by the Commission, which aims for France to align its deficit with the EU's 3% limit by 2029.
Conclusion
In conclusion, France's 2025 budget represents a critical step towards addressing its fiscal challenges. While the proposed measures are ambitious and far-reaching, they also pose significant political hurdles. The success of these budgetary adjustments will be closely watched by financial markets and EU partners alike.
