Postponed pension indexation, more controlled health spending, taxation of polluting transport: to restore public finances, the government is planning an effort of 60 billion euros in its 2025 draft budget, which it will present late on October 10 unpublished.
The outlines of the next finance bill are becoming clearer, the day after Prime Minister Michel Barnier’s general policy speech and before its presentation to the Council of Ministers, more than a week after the legal deadline of October 1 due to a calendar shaken up by the anticipated legislative elections.
The social security financing bill (PLFSS) will also be presented on October 10, before debates which promise to be heated in the National Assembly, where the government lacks an absolute majority.
To reduce the deficit to 5% of gross domestic product (GDP) in 2025 (i.e. a hole of some 150 billion euros), after an expected widening to 6.1% this year, the government is planning an effort of 60 billion euros. euros, supported by all public administrations.
More than two thirds of the amount, or 40 billion euros, will come from spending cuts and just under a third (20 billion euros) from tax increases.
On the spending side, around a third of the savings concerns Social Security, with the flagship measure being the postponement of pension indexation by six months, to July 1, which would bring in 3 billion.
Even if it remains higher than inflation, the increase in health insurance expenditure (Ondam) will be more controlled, at 2.8%.
“Precipice”
The bulk of the savings will be made by the State, with a little more than 20 billion.
The freezing of ministries’ credits will result in a reduction in spending of around 15 billion euros, while additional savings of 5 billion will be requested from them, with reductions in staff as a result. State operators will have to curb their spending to the tune of 1 billion euros.
Local authorities will carry the rest of the savings, after being accused by the outgoing government of having contributed to the public deficit slipping in 2024.
The president of Intercommunalités de France, Sébastien Martin, estimated “between 5 and 7 billion euros” the savings required from communities in 2025, in a reaction to AFP. Without being “opposed” to it, he nevertheless asks the State not to “impose” additional expenses on them at the same time, as it did in 2022 and 2023 by increasing the salaries of civil servants.
The effort planned for 2025 is considerable after savings of 10 billion euros already made in 2024 by the previous government and the freezing of 16.5 billion credits, which his successor will be able to cancel in whole or in part.
Michel Barnier warned on Tuesday that if nothing is done, France’s “colossal” debt (112% of GDP or 3,228.4 billion euros at the end of June) risks placing it “on the edge of the precipice”.
Above all advocating cutting spending, he also broke, in the name of “fiscal justice”, the Macronist taboo of an increase in taxation: an “exceptional” contribution will be requested from “large companies which make significant profits” and to the “most fortunate French people.
Risk of recession?
Measures to green the economy are also planned for 1.5 billion euros. They would target highly polluting transport, in particular a tougher penalty on vehicles emitting the most CO2, while the air sector expects to be taxed an additional billion.
European champion of public spending, France would see their share decline slightly from 56.8% of GDP in 2024 to 56.3% next year thanks to these efforts.
In the sights of Brussels for its excessive deficit and the rating agencies, the country should see its debt approach 113% of GDP in 2024 and 115% next year, before decreasing as the deficit falls to less of 3% of GDP in 2029, in accordance with European rules.
While making it possible to “consolidate” public finances, the recovery measures also risk “pushing the economy towards recession”, warned Capital Economics in a note.
Economic growth is expected at 1.1% in 2025, as this year, against a backdrop of a decline in inflation from 2.1% to 1.8% on average annually.
Certain PLF measures will be introduced by government amendments during the parliamentary debate. The timetable was becoming too tight to do otherwise because Parliament must have 70 days to debate the budget with a view to promulgating the law before January 1, 2025.
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