Weakened growth, slowed budgetary consolidation, increased uncertainty… The probable fall of the government without a budget for 2025 will penalize France, economists estimate, without necessarily plunging it into “the storm” feared by the government.
Managed deficit
Special law or ordinance, France has several means of avoiding paralysis which would prevent civil servants from being paid, for example.
But let a new Prime Minister adopt “a watered down budget” including concessions or the 2024 budget being renewed identically, the country would miss its objective of reducing its public deficit to 5% of GDP next year, projects Maxime Darmet, economist at Allianz.
A renewed 2024 budget resulting in a freeze in state spending in value terms would represent between 15 and 18 billion euros in savings, explains Mathieu Plane, economist at the OFCE. This is a level close to the effort planned in the initial finance bill (PLF) for 2025.
Social spending, automatically indexed to inflation, would however be increasing while the State would have to renounce the tax increases – at least 20 billion – that it was considering, such as the surtax on very high incomes or the profits of large businesses.
the Natixis bank estimates that in such a scenario, the deficit would reach 5.3% of GDP while Paris is already being singled out by Brussels for its excessive public deficit.
Winners and losers
In the case of a technical budget, retirees would see their pension increased in line with inflation on January 1, while the government only planned to do this completely for pensions below the minimum wage, with a delay.
On the other hand, the burden of income tax would be increased: due to a scale not revalued according to inflation, 380,000 additional households would automatically be subject to income tax and “17 million households would pay more”recently warned the Minister of the Budget, Laurent Saint-Martin.
The public accounts of France / Bertille LAGORCE, Sabrina BLANCHARD / AFP
Another loser is the local authorities, whose allocation paid by the State risks being frozen, underlines Maxime Darmet, who sees this as a risk for the functioning of public services. Some could compensate for the shortfall by raising local taxes, particularly property tax, according to him.
– Low growth –
The reduction in spending will weigh on growth, to varying degrees depending on the scenario.
“With a budget renewed in the terms of 2024, and in particular on the expenditure part, we would have a reversal of what has made it possible, for the moment, to maintain a little growth in France”namely “public investment” in an economy that is very dependent on it, explains Charles-Henri Colombier, economic director at Rexecode.
The increasing tax burden on household income would also not be likely to encourage consumption.
Added to this would be an accentuation of the negative effect of political uncertainty – so far estimated at 0.2 points of GDP for 2025 by the OFCE – which would lead households and businesses alike to a prolonged wait-and-see attitude. Mr. Colombier also mentions the growing mistrust of foreign investors.
And less growth means less tax revenue, complicating the budgetary equation.
Financial shocks
“The consequences of censorship could cost us the trust of our creditors and our neighbors”warned Tuesday the president of Medef Patrick Martin, the leading employers' organization.
Resistant to uncertainty, the financial markets are already experiencing shocks. After Michel Barnier held his government accountable, the ten-year French public bond rate immediately climbed, going from 2.86% to 2.92% in a few hours.
The « spread »the gap between the rates of France and Germany, a barometer of investor confidence, also experienced a rapid increase on Monday, to 0.88 points.
In its misfortune, France has a strong ally: the European Central Bank. In June, it initiated a policy of lowering rates, made possible by the decline in inflation in the euro zone, easing the pressure on interest rates on government bonds.
It remains that “If nothing changes in the coming months, weariness could set in on the markets, and then everything could get out of control very quickly”warns Aurélien Buffault, bond manager of Delubac AM.
