Barnier government: increase in debt, new taxed households… What does the French economy risk in the event of government censorship?

With the use of 49-3 by Michel Barnier for the 2025 budget this Monday, December 2, his government, threatened by a motion of censure, is more than ever in the hot seat. If the consequences would affect the political sphere more directly, the French economy risks suffering if censorship is passed.

After the dissolution of the National Assembly desired by Emmanuel Macron last June, France is going through a new unprecedented scenario with a motion of censure which has a strong chance of succeeding due to the opposition of the National Rally and a large part of the New Popular Front within the Hemicycle, which could lead to the overthrow of the government. If the political context will be most disrupted by this context, the budgetary, financial and economic situation of France is just as affected, and the consequences would be diverse.

A debt on the verge of explosion

The budget proposed by the government, the source of all the disagreements, aimed to reduce the deficit which currently stands at 6.1% to 5% in 2025, with a savings plan of 60 billion dollars. An ambition which required tightening the screws for taxpayers, and French public services which have already been widely criticized.
But Barnier's plan, now exposed to censorship, risks falling apart. In the event of the overthrow of the government, France's deficit could widen to 6.4% of GDP: the fall of the government will prompt Parliament to adopt a “special law”, provided for by article 47 of the Constitution.

The 2024 budget renewed

Broadly speaking, this “special law” would result in a renewal of the 2024 budget, far from the shutdown predicted by Elisabeth Borne last week. Thus, the credits allocated to ministries would be frozen, which would allow savings of up to 18 billion. But in deca, it is the income tax which risks integrating 380,000 new households while 17 million French people would pay more, with the result… 3 billion in revenue for the State, but more citizens great difficulty, because taxes will no longer be indexed to inflation.
But these 3 billion savings will immediately go into the pockets of retirees due to the revaluation of pensions on January 1, included in the Social Security Code, independently of the government.

Farmers in the crosshairs

For the Minister of Economy and Finance Antoine Armand, the situation would be much more catastrophic, according to his comments on the set of Telematin this Tuesday, December 3, 2024. “The situation would not benefit any French person and would only create losers”he estimated. Farmers risk being the most affected by the vote on a motion of censure: the measures promised by the Attal and Barnier governments will be suspended, including the renunciation of the planned increase in the tax on non-road diesel, included in the 2025 budget. Households who wish to access property risk reviewing their plans, since the expansion of the zero-interest loan promised by the Barnier government will no longer be on the agenda.

Civil servants in turmoil

Civil servants risk being the big losers in this situation. The 2025 budget planned to increase appropriations for the Defense mission by 3.3 billion euros more than the previous year. The financing of new police stations or the deployment of additional police forces will therefore no longer be on the agenda, as Bruno Retailleau explained on the set of TF1 this Tuesday, December 3. On the diplomatic level and in the context of the War in Ukraine but also in the Middle East, the situation risks also becoming tense, with Minister Sébastien Lecornu having announced that the order for the future aircraft carrier planned for next year could be postponed. .

Losers… And winners

On the other hand, if the motion of censure were passed, this would happily benefit certain companies and sectors of activity: the highest incomes where companies whose turnover exceeds one billion euros will escape the exceptional effort requested by Michel Barnier via a minimum tax rate. The renunciation of the 2025 budget will also benefit the field of online games, laboratories but also maritime freight for which an increase in taxation was planned.

Fines of 1.5 billion euros for France

Already singled out by the European Union for its excessive deficit, France risks being in bad trouble, and could face a fine of up to 1.5 billion euros every six months in the event of a motion. of censorship. At issue: the debt which risks increasing further, while Paris must redress the bar… Not to mention that the situation risks slowing down business investments and that households would be more encouraged to save rather than consume, bad news for growth which should not exceed 1% next year, but rather stagnate at 0.5%, according to the OFCE.