To stop the drift in France’s public finances, the government detailed, Thursday October 10, how it planned to find tens of billions of euros in 2025. Despite tensions over tax increases even in the presidential camp supposedly supporting it, Prime Minister Michel Barnier is aiming for a shared effort to preserve French credibility with the financial markets and the EU, which has singled out Paris for its excessive deficits. Here are the main measures planned in the finance bill (PLF), which should be hotly debated in Parliament.
Calculation method
Savings for next year are calculated by the government in relation to the “trend” of expenditure, that is to say the progression that this expenditure would have experienced if no measures had been taken to slow it down. Thus, the PLF and the social security financing project (PLFSS) provide for a budgetary effort of 60.6 billion euros in total compared to this “trend”, increased according to the government to 68% by a reduction in expenditure. and 32% through tax increases.
From ministries to the diet
The State is the main contributor to spending reductions, to the tune of 20 billion euros, according to the official presentation, an amount to which is added an effort of 1.5 billion euros on State operators.
Ministries will have to tighten their belts, particularly Labor, Health and Development Aid. Their spending ceiling for 2025 is identical to that of 2024 because it does not take into account inflation (expected at 1.8% by the government next year), enough to save 15 billion euros. Civil servant positions will be eliminated: 2,201 fewer, particularly in National Education, the largest item of State expenditure.
The budget of the Ministry of Justice will be set at 10.24 billion euros, almost 500 million euros less than planned.
Ministries having benefited from a multi-year programming law, such as Defense, will be partially spared, which will benefit from an additional 3.3 billion euros. An additional contribution of 5 billion euros will be requested from ministries through an amendment which will be tabled in Parliament by the government.
Measures relating to Social Security appear in the PLFSS and not the PLF. They plan to save 14.8 billion.
Communities contacted
Communities will also be asked to contribute 5 billion euros, to the great dismay of local elected officials. The main mechanism planned is a savings fund imposed on the 450 “largest” communities, for a 3 billion euro brake on spending. Twenty “sensitive” departments will be spared.
Also planned is a freeze on the annual revaluation of VAT revenue received by communities (1.2 billion euros) and a reduction in the VAT compensation fund (800 million).
Surtax and dividend
In addition to a reduction in exemptions from employer contributions or apprenticeship aid provided for in the PLFSS, companies will have to pay increased taxes for a total of 13.6 billion euros, according to Bercy calculations.
Large companies with a turnover exceeding 1 billion euros, or around 400 companies, will pay an “exceptional contribution” on their profits, which should bring in 8 billion euros in 2025. The government has promised that it would be temporary, for two years.
The public electricity giant EDF will pay a dividend to the State, and the auto penalty will be toughened, for a total of 2.3 billion euros.
The abolition of the CVAE, a production tax whose extinction had been scheduled by the previous government, has been temporarily canceled, enough to bring 1.1 billion euros into the coffers. It will be reinstated “in three years”, said the Minister of the Economy, Antoine Armand.
A tax on share buybacks which are subsequently canceled to compensate shareholders is expected to bring in 200 million euros. A “greening of taxation” for polluting transport will be proposed during the parliamentary debate, for 1.8 billion euros. This should mainly involve an increase in the tax on airline tickets.
Wealthy households and electricity
The wealthiest households, whose tax income exceeds 250,000 euros for singles, widowers, divorced people, and 500,000 euros for couples, will have to pay more than the exceptional contribution on high incomes already in place. And this for three years. Strengthening this mechanism, which should bring in 2 billion euros, amounts to establishing a minimum tax rate of 20% to limit the use of tax optimization. This measure affects fewer than 65,000 tax households (0.3%), according to the government.
The latter, on the other hand, intends to revalue the income tax brackets by 2% in 2025 to “protect the purchasing power of the French”, which will represent a shortfall of 3.7 billion euros for the State, according to Bercy.
Despite Prime Minister Michel Barnier’s promise to spare workers or those on the lowest incomes, a tax on electricity (TICFE) which had been lowered during the inflationary crisis will be raised drastically, definitively putting an end to the tariff shield. It will be raised to a higher level than pre-crisis, even if Bercy ultimately guarantees a 9% reduction in the regulated tariff in 2025. The government hopes for 3 billion euros. French people heating with gas are also targeted: VAT is increased to 20% (compared to 5.5% or 10% currently) for the installation of a boiler, enough to bring in 200 million euros.
Finally, the penalty on the purchase of new polluting cars is increased and will affect almost all gasoline and diesel vehicles. The envelope for the bonus supposed to encourage the purchase of new electric cars increases from 1.5 to one billion euros.