Revaluation of pensions postponed, civil servant positions eliminated, exemptions from lowered employer contributions… The French government unveils this Thursday, October 10, its very delicate draft budget for 2025. The objective: to find 60 billion euros – or 2% of GDP – for the year 2025 alone, in the finance bill (PLF) and social security financing bill (PLFSS) to redress adrift public finances. For comparison, the austerity plan announced in 2011 by François Fillon’s government provided for a reduction in the deficit of 65 billion euros over five years.
This unique project will be based on a shared effort: on the expenditure side, a reduction in public spending, and on the revenue side, an increase in taxes. “This braking is essential, otherwise we are heading straight towards a financial crisis,” Michel Barnier warned on Friday. Defending himself against any “fiscal shock”, Prime Minister Michel Barnier promised to spare “the most fragile” and “those who work”. A high-risk exercise as the effort planned to reduce the dizzying French deficit is massive, and the fragmented National Assembly is hostile to it. Here is what we already know about the measures that will be proposed by the government.
Public services, main contributors
Prepared “in extreme urgency” and presented with an unprecedented delay in a timetable disrupted by the anticipated legislative elections, the draft budget plans to achieve two thirds of the effort, or some 40 billion euros, thanks to reductions in public spending . The State will be the largest contributor, to the tune of 20 billion euros.
Civil servants are in the sights, while ministries will have to provide 5 billion in savings, and freeze their credits. “We are going to merge public services. We will probably not replace all civil servants when they are not in direct contact with citizens, all civil servants who retire,” warned Michel Barnier on France 2.
A third of the savings will concern Social Security, which must release 15 billion euros. With the key measure being the six-month postponement, to July 1, of the indexation of pensions, which should make it possible to generate “around 4 billion in savings”, the Ministry of Labor told AFP. It is also planned to transfer a fraction of reimbursements for medical consultations to complementary health insurance and to reduce the contribution of Health Insurance to the financing of sick leave.
Local authorities drained
Local authorities will carry the rest of the public savings. The president of Intercommunalités de France, Sébastien Martin, estimated “between 5 and 7 billion euros” the savings required in 2025 from communities, in a reaction to AFP. Accused by the previous government of having let their spending soar, they hope to be able to change this drain during the parliamentary debate.
“We do not accept any of the measures” in the budget, the president of the local finance committee and deputy vice-president of the Association of Mayors of France (AMF) André Laignel already reacted on Tuesday October 8. He estimates that it is rather “9.5 billion euros” that the State is demanding from them, adding to this the reduction, confirmed by the ministers according to him, of 1.5 billion euros in the Green Fund per year. next, and the effects of inflation. He denounced “an unprecedented drain in a single year”.
Aid for hiring apprentices will also suffer a reduction, as will reductions in charges. This increase in labor costs is decried by Medef, the leading employers’ organization, which sees it as a threat to the competitiveness of French companies and “hundreds of thousands of jobs”.
Tax increases for the wealthiest
20 billion will be covered by tax increases through contributions from the wealthiest and the largest companies. A turnaround made in the name of “tax justice”, after seven years of aggressive tax reduction, in a country still champion of compulsory deductions and spending. The 65,000 wealthiest tax households (i.e. 0.3% of the total) will pay an “exceptional” surcharge which would bring their minimum tax rate to 20%. “This measure would bring in an additional 2 billion euros,” Michel Barnier said last Thursday on France 2.
And 300 companies whose turnover exceeds one billion euros will pay more than the 25% corporate tax rate, for “one year and maybe two years”. According to several newspapers, including The World And Les Echosthese levies would bring in 8 billion euros.
Electricity, social security, gambling…
Still on the revenue side, in addition to measures to green the economy planned to bring in 1.5 billion euros and which would target highly polluting transport, the airline sector expects to be taxed an additional billion.
The government is also “considering” raising next year “beyond” 32.44 euros per megawatt hour the tax on electricity known as TICFE, which had been drastically lowered during the inflationary crisis in the name of the energy shield. The increase to 32.44 euros per MWh was supposed to bring 5 billion euros, the amount of revenue expected beyond this threshold was not specified.
Concerning social security, the government would consider, according to the newspaper Les Echosa unique system of general progressive reduction of employer contributions up to three times the minimum wage – instead of the multiple current relief scales. Which could bring 5 billion euros to the state coffers, according to the newspaper. Gambling is also in the executive’s sights, according to this source, with a planned increase in social security contributions from the sector.
Forceps adoption announced
The situation is considered serious, before the verdict of the rating agencies on the financial solidity of France in the coming weeks, including Fitch on Friday. After an expected slippage to 6.1% this year, the objective is to reduce the public deficit to 5% from 2025, to return in 2029 below the limit of 3% tolerated by Brussels (which launched an excessive deficit procedure against France). The debt reached 112% of GDP at the end of June, almost double the ceiling set by Brussels. It has swelled by a thousand billion since the arrival of Emmanuel Macron as president in 2017, weighed down by the cost of repeated crises and recent tax revenues which have been disappointing. It will approach 115% next year before gradually decreasing.
The budgetary path of the cross is proving all the more difficult as it is coupled with great political instability. The government says it is open to dialogue with parliamentarians but, fragmented into three blocs, the deputies are reluctant to make concessions. Consequently, the budget could be adopted without a vote, via article 49.3 of the Constitution.