The 2025 Budget of French PM Michel Barnier includes shock therapy

In an effort to reduce its growing deficit, the French government proposed a budget that would cut spending by €60bn and increase taxes on wealthy companies. Prime Minister Michel Barnier made tackling France’s ‘colossal’ public debt his top priority, despite political risks such measures pose to his fragile minority government.

Barnier stated on Thursday that “we cannot continue to write bad checks and fall on our children’s future.” Barnier said on Thursday that “the attractiveness of France and the credibility of its signature must be maintained.”

The proposed budget would tax 440 large companies with revenues exceeding €1bn for a period of two years, with a goal of raising €12bn. Taxes will also be levied on share buybacks. EDF, the state-owned electric utility, will pay a special tax to the government. Together, these changes and other business changes would generate €13.6bn.

The economic policy that Macron has been promoting since 2017 would be broken if the measures were passed. These include the lowering of taxes and the easing of strict labour protections to increase growth and competition. Barnier will face his first real test after Emmanuel Macron appointed him as premier in August, when he must pass the budget through the National Assembly.

After the shock snap election, which forced Barnier’s Les Republicains to form a power-sharing coalition with President’s centrist party, his appointment was made. Few legislators believe that Barnier can adopt the budget without using a clause in the constitution which allows him to override the parliament. However, doing so could expose him to the risk of being subject to a vote of no confidence.

Barnier must be able to calm down investors’ fears about lending to France, and also withstand press coming from Brussels. Brussels has warned Paris over its excessive deficit. French borrowing costs are now higher than those of Germany and Spain.

According to the government, two-thirds (60 billion euros) of the effort will be derived from cuts in spending, including medical costs, unemployment and the reduction of public employees. Tax increases will cover the rest.A government-appointed independent advisory group, using a new calculation method, estimated that taxes would account for 70% of the effort.

Barnier’s party, like Macron’s centrists, wants to cut spending while Barnier also wants to reduce taxes. Barnier said that the draft budget is a good starting point for legislators, but warned against derailing the goal of reaching a 3 percent deficit in national output by the year 2029.

Delaying the planned reduction in production taxes will also hurt companies. These are taxes that groups pay regardless of their profitability. Macron’s strategy to boost supply was marked by the elimination of these taxes.

A new tax on private jets and airlines will generate €1bn in revenue next year. Container shipping companies such as CMA-CGM based in Marseille, however, will face an additional levy of 800mn over the next two-year period.

The higher costs of labour will also affect businesses due to the elimination of tax breaks for low-income workers, and the phase out of apprenticeship subsidies.

Barnier has claimed that working people would be protected, but households will see higher taxes on their electricity bills. If the government cuts back on reimbursements for doctors’ visits and medicine as planned, individuals will also face higher healthcare costs.

France’s richest are asked to pay €2bn as a new tax for those earning about €500,000 per year, which is estimated to be 65,000 households.

By the end of this year, the deficit will be over 6%. The government wants to reduce it to 5% by 2025. However, public spending is still expected to increase in the coming year due to the fact that all of the taxation and spending cuts will only slow down the rate of growth.

Since last year, France has repeatedly overshot their deficit targets. This has led to concerns that the government is losing control of spending and cannot accurately predict tax receipts. As of July, its debt load was 110 percent of GDP. This is the third worst in the EU after Greece and Italy.

Since the 1960s, successive French governments have failed to present balanced budgets. The French public is known for its appetite for expensive welfare programmes, and it supports a high degree of income redistribution.

Barnier has made a controversial proposal that asks retirees – who have been protected by politicians for years as a voting bloc – to defer the inflation-adjusted annual increase in their state pensions.

This move could save around €3.6bn. The Rassemblement National, a far-right party, has already condemned it.

Barnier is taking a risk by pushing the issue, because Marine Le Pen’s RN is a key swing vote bloc required for a No-confidence vote.