Serious things are beginning for the government of Michel Barnier. Nine days late on the legal calendar, due to the long political negotiations which followed the legislative elections, the executive presented this October 10 to the Council of Ministers the State budget and that of Social Security for 2025. A long two-month parliamentary sequence opens, first in a National Assembly more fragmented than ever.
After two years of deterioration of an unexpected level in public accounts, the two financial texts represent 60 billion euros of budgetary effort, in order to limit the deficit to 5% of GDP next year. “It will be difficult. This involves shaking up our practices and our way of spending public money,” summarized the Minister of the Economy, Antoine Armand, this Thursday.
The proposed adjustment is unprecedented in our recent history and constitutes only a first step to bring the trajectory below the European minimum of 3% by 2029, and exit the excessive deficit procedure. Under the supervision of its creditors, Bercy is keen at all costs to avoid an increase in the cost of our debt, expected at 3,300 billion euros in 2024 (113% of GDP). Reducing the deficit, “a necessity to protect France’s signature, and more broadly to ensure our economic stability,” insisted the Minister of the Economy. The deficit, which is expected to widen to 6.1% in 2024, could reach 7% next year without braking measures, taking into account the natural evolution of spending, linked to inflation and the aging of the population. .
The High Council of Public Finance estimates that the effort is based on a 70% increase in compulsory deductions
Two thirds of the effort – 40 billion euros – will be achieved by spending reductions, and the last third by leveraging taxes, for a volume of nearly 20 billion euros. Bercy insists that this is a “responsibility” budget. “A path of responsibility, I say it very clearly, is a path which excludes any fiscal bludgeoning and any austerity cure. We will not straighten out the accounts by stopping growth,” emphasized the Minister of Budget and Public Accounts, Laurent Saint-Martin.
The High Council of Public Finances, responsible for issuing an opinion on the macroeconomic scenario of the budgetary texts, however has a different reading of the distribution of effort. According to this body placed with the Court of Auditors, the effort is based 70% on increases in compulsory levies (30 billion euros) and 30% on expenditure (12 billion euros). This is due to differences in interpretation between this body and the government, the first seeing, for example, the reduction in exemptions from employer contributions as tax revenue, and the second as a reduction in expenditure.
In total, the compulsory deduction rate should increase, after the 2025 PLF, from 42.8% of GDP at the end of 2024, to 43.6% next year, an increase of 0.8 points. “This is less than the high points observed in recent years,” tempers those around Bercy ministers.
A contribution from the highest incomes and the largest companies
By opening the door to higher taxation on the wealthiest households and large businesses, the finance bill (PLF) for 2025 marks a form of break compared to the last seven years marked by a continuous drop in the tax burden. . “We are retaining our doctrine by maintaining a supply-side policy and firm support for activity,” however, clarified the Minister of the Economy, even if “the fiscal tool is necessary in the short term.” The Bercy ministers also insist on the “temporary” and “targeted” nature of certain measures.
A symbol, first of all: 65,000 wealthiest tax households (0.3% of the total) will pay an exceptional contribution, which should bring their minimum tax rate to 20% and thus limit the effects of tax optimization schemes. The expected revenue, for these people earning more than 250,000 euros per year, is two billion euros.
Still in the name of “tax justice”, the largest companies will also be subject to greater contributions in 2025 and 2026. 440 companies whose turnover exceeds one billion euros will be hit with a tax rate on companies higher than the current rate of 25%: 30% for companies whose turnover exceeds one billion euros, and 36% for those whose turnover exceeds 3 billion euros. This contribution should bring an additional 8.5 billion into state coffers next year. The PLF also stops the movement to reduce production taxes. Canceling the continued reduction in the contribution on business added value (CVAE) would make it possible to preserve 1.1 billion in revenue.
A tax on the buyback of shares by large companies is also planned, for an announced yield of 200 million euros. The bill will also increase the tax regime for capital gains on furnished tourist accommodation at the time of transfer, the famous Airbnb tax loophole.
Increase in the level of taxes on electricity
If the Prime Minister defended himself from any “fiscal shock”, other provisions appearing in the State budget (apart from Social Security) should however affect a much wider audience. Starting with the increase in excise duty on electricity. Taking advantage of the significant decline in electricity prices, the bill paves the way for a normalization of taxes on consumption. But this tax will be raised to a level higher than what prevailed before the inflationary crisis, enough to generate additional revenue which is welcome in the current context. The level will be set in February by decree, but the excise could be in a range around “50 euros per megawatt hour” (compared to 22 currently, and 32 before the crisis). Bercy undertakes to set an amount enabling it to achieve an average reduction in bills at the regulated rate of “9%” on average next year.
The 2025 PLF will also be more severe with fossil fuels. The ecological penalty on polluting transport will be tightened, for a gain of 500 million euros, as will the tax on plane tickets. This is still the subject of discussions with the airline sector. An increase in VAT on gas boilers is also planned, as a result of compliance with European regulations.
As for spending cuts: ahead of Social Security (15 billion) and communities called upon to curb their spending by 5 billion euros, the State will be the first contributor, with 20 billion in cuts and 1.5 for its operators , thanks to “reconciliations” of possible duplicates and withdrawals from “dormant” cash. An effort described as “shared” by Bercy. For the State, the government is starting from the ceiling letters prepared by the previous team, which make it possible to save 15 billion euros compared to the trend in expenditure. Bercy is also aiming for an additional 5 billion through amendments which will be tabled during parliamentary debates. Lack of time prevented integration into the initial text.
Decrease in ministry resources
The Labor mission, for example, loses 2.3 billion euros compared to the finance law for 2024. The government defends the elimination of free jobs and wants to reduce the resources allocated to subsidized contracts. “As soon as unemployment reaches its lowest levels in 40 years, we can adapt our measures and the extent of support,” justified the Minister of the Budget and Public Accounts. Same with learning aids, Bercy also wants to reduce the size.
For the ecological transition, the budget of Ma Prime Rénov’, which finances insulation work in particular, is reduced by one billion euros compared to last year. “There are recalibrations of systems to take into account under-executions,” specifies the Ministry of Public Accounts.
The government is also proposing to significantly reduce certain budgets “which have increased very significantly since 2017”, such as public development assistance. This would see its resources decrease by 1.3 billion euros, to reach 5.5 billion euros.
2,200 job cuts in the state civil service and state operators
To “do better with fewer resources”, the Minister of Public Accounts added “do better with fewer staff”. The government plans 2,200 job cuts, including 1,200 for ministries and 1,000 for operators, these more than 400 organizations entrusted with a public service mission and which employ more than 400,000 people.
“These are targeted reductions, not undifferentiated cuts,” defended Laurent Saint-Martin. For the sphere of the State, it is the General Directorate of Public Finances and National Education which will be the most affected. The employment plan of the latter ministry is a net reduction of 2,000 positions (4,000 fewer teaching positions but 2,000 new AESH positions), due to the drop in the number of students. “If we had mechanically applied the drop in enrollment linked to this drop in the number of students, we would have a drop in teaching of 4,800,” says Bercy. On the operator side, it is mainly at France Travail that the reductions are taking place.
“Moves” for the sovereign ministries during the examination of the budget in Parliament
This Thursday, the government announced that the programming laws adopted in recent years, in favor of Defense, the Interior, Justice and even Research, will not be able to be honored at the height of the march which was scheduled for 2025. “There will be smoothing,” warned Laurent Saint-Martin, and differentiated treatment depending on the ministries concerned.
Adjustments are expected in the coming weeks. Bercy said it had heard criticism from Minister of Justice Didier Migaud, who considered that its budget set by the ceiling letters was “not satisfactory”. The government will propose to increase it during the debates. Ditto for the Ministry of the Interior, which has until now been promised an increase of 600 million euros in its budget. The executive thus wants to materialize the “priority” it gives to the “security of the French”.
Other symbolic amendments were announced during the debates, such as an increase of 50 million euros for the Post Office’s allocation. The announcement of cuts in September sparked an outcry.
The examination of the budget promises to be highly perilous in the National Assembly for Michel Barnier. And not just on the opposition side. On Wednesday, the Prime Minister expressed his “concern” about the lack of “solidarity” of the different entities in his coalition. In any case, the ministers assured that the budget would be based on “co-construction” with parliamentarians. “This project is, as its name suggests, a project. A project that can obviously be improved in view of the political situation and the deadlines,” recognized the Minister of the Economy Antoine Armand. His colleague Laurent Saint-Martin revealed his “golden rule”: “each euro of additional revenue will be pledged on two euros of budgetary savings”. “I heard a lot of red lines. I only have one, which is to straighten out the accounts. It will be my only compass,” he insisted.
After months of budgetary accidents in the estimation of the collection of tax revenues, but also of late transmission of information, widely denounced by the Senate in a recent investigative work, the government has made commitments that the committees of finances will appreciate. Antoine Armand wants to launch an action plan to improve the “quality and transparency of public finance forecasts”. As for Laurent Saint-Martin, he promised to report “regularly” to Parliament on the information he had. The two ministers will now provide after-sales service on the bill before the two finance committees of the Assembly and then the Senate this Friday. Auditions to follow live on our antenna.
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