France needs 60 billion to complete its 2025 budget

The government forecasts inflation to be controlled at 1.8% in 2025. However, an inflationary crisis persists: the need to make considerable savings in the 2025 budget. At the start of the year, the former government mentioned 25 billion euros savings to maintain the budgetary trajectory. Later the figure was revised to around 30 billion. This Wednesday, the government finally announced that it was necessary to find 60 billion euros in the finance bill (PLF), which must be presented next week, on Thursday October 10. This envelope is divided between 40 billion in spending cuts, i.e. savings, and 20 billion in revenue increases, tax increases, therefore.

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This colossal budgetary effort is necessary to achieve the new deficit target for 2025: 5% of GDP, representing a financing requirement of around 150 billion euros. As a reminder, in April, the previous government committed, after an initial slippage in the public deficit in 2023, to reach 4.1% of GDP next year. However, this year, the public deficit is once again rising sharply and could reach 6.1% of GDP by the end of the year – an unprecedented peak outside of a crisis period -, far removed from the European rule of 3 %. The new government wants to reach this threshold by 2029, a delay of two years compared to the previous trajectory. This trajectory of restoring the accounts would not make it possible, in the short term, to reduce the debt, which would go from 113% of GDP in 2024 to 115% in 2025.

“Ecological” taxes

After two major forecast errors on the deficits of 2023 and 2024, the Barnier government seems determined to make more cautious forecasts and make less ambitious commitments than its predecessor. For example, for 2024, Bercy is counting on modest growth of 1.1%, the same forecast as that of INSEE. For 2025, it also forecasts growth of 1.1%, slightly below the economic consensus, which is quite rare for a government forecast.

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In total, Bercy is targeting public spending of 1,700 billion euros next year, which would correspond to a slight decline in the ratio of spending to GDP (from 56.8% to 56.3% in 2025). The State should also receive around 1,560 billion euros in revenue, according to the macroeconomic framework document sent this Wednesday by Matignon for opinion to the High Council of Public Finances, an organ of the Court of Auditors. Of these 1,560 billion, around 20 billion would come from tax increases that the government intends to include in the budget.

In his policy statement, delivered on Tuesday, the Prime Minister expressed his intention to temporarily increase taxes on big businesses and wealthy taxpayers. In addition to these “targeted” tax increases, the government wants to include around 1.5 billion euros in additional “ecological” taxes in the budget, with measures on thermal vehicles and an increase in the auto penalty on vehicles. the most polluting.

Concerning the 40 billion savings in spending, many avenues remain quite vague. The government wants to add 5 billion euros in savings to the 15 billion already planned in the state budget by Gabriel Attal. Social security will also be involved (around 13 billion euros) and so will local authorities (around 7 billion euros).