French Government Announces 60 Billion Euro Spending Cuts and Tax Hikes to Tackle Deficit

French Prime Minister Michel Barnier delivers a speech during a parliamentary session debate on a vote on no confidence motion at The National Assembly in Paris on Oct. 8, 2024. Thomas Samson/AFP via Getty Images

France’s government’s 2025 budget is planning 60 billion euros ($65.68 billion) worth of spending cuts as well as tax hikes in a bid to reduce its spiraling fiscal deficit.

The new measures, announced on Thursday by new Prime Minister Michel Barnier’s administration, aim to bring the deficit down to 5 percent of GDP by next year, from the current 6.1 percent.

This is the first step towards meeting the European Union’s EU 3 percent limit by 2029, it said.

France’s national debt is projected to reach nearly 115 percent of GDP in 2025, with interest payments set to become the largest budgetary item, surpassing defense and education.

‘We Must Act’

Finance Minister Antoine Armand France 2 TV, “Our policy is not made for rating agencies but we obviously look at the international climate and at how France is viewed.”

“Facing a spiralling deficit, we must act and that is exactly why we presented yesterday a recovery budget. We absolutely need to regain control over our debt and our deficits,” he added.

Barnier said he will target big companies with a temporary surtax as well as individuals earning over a quarter of a million euros per year. All taxpayers will also hit by plans to restore a levy on electricity consumption.

Analysts

Some analysts said they were not confident that the French government could reach next years’ deficit target.

“The magnitude of the proposed consolidation and the corresponding reliance on tax increases leave us less confident in the ability of the government to meet its 2025 deficit target of 5.0 percent,” Goldman Sachs analysts said in a research note on Thursday.

JPMorgan economist Raphael Brun-Alguerre told Reuters he expected the budget to only reduce the fiscal shortfall to 5.4 percent, with economic growth falling short at 0.7 percent instead of the 1.1 percent the government is hoping for.

The announcement comes at a politically delicate time for France.

President Emmanuel Macron’s party lost its majority in a snap parliamentary election on June 9 he called after losing to the right wing populist National Rally (RN) in European elections.

French President Emmanuel Macron speaks at the ‘Berlin Global Dialogue 2024’ event at the European School of Management and Technology in Berlin, Germany, on Oct. 2, 2024. Ludovic Marin/AFP/Getty Images

Surging Borrowing Costs

Political uncertainty has since contributed to surging borrowing costs, as investors grow wary of potential economic instability.

The left-wing New Popular Front alliance (NFP) and La France Insoumise (France Unbowed), which includes the Communist Party, the Greens, and the Socialist Party won the most seats in June, but not a majority. Macron’s centrist party came second and the RN third.

Macron appointed the European Union’s former Brexit negotiator Michel Barnier as France’s next prime minister on Sept. 5.

Public Finances

The French government will have to placate opposition parties, who could veto the budget bill and/or topple the government with a no-confidence motion.

Reuters reported that Barnier may also need to use special constitutional powers to bypass parliament, although that would probably prompt a no-confidence motion.

The NFP has vowed to oppose the spending cuts, accusing the government of prioritizing big business over workers. David Guiraud, a leading figure in La France Insoumise, said on X, accusing the government for favoring corporate interests.

“When we throw hundreds of billions of euros out the window to give them to the CAC 40, it poses major problems for our public finances,” Guiraud said, referring to the benchmark French stock market index.

National Rally Party has also criticized the budget.

RN politician Yoann Gillet on X said that the Barnier government “wants to pick the pockets of the French, refusing to make the necessary savings on immigration, tax and social fraud.”

Reuters contributed to this report.