Electricity, pensions… What the concessions granted by Michel Barnier in the 2025 Budget will cost

To obtain sufficient support in Parliament and thus escape censorship, the Prime Minister agreed to reverse certain measures included in his budgetary texts. At the risk of having to abandon the 5% deficit objective in 2025?

Michel Barnier is playing for his survival in Matignon. In office for less than three months, the Prime Minister is increasing the number of concessions to try to escape censure, which could occur as early as next week on the Social Security budget which will return to the National Assembly on Monday.

Initially, Michel Barnier had set the objective of generating 60 billion euros in savings in 2025 in order to clean up a very deteriorated public deficit expected at 6.1% of GDP this year. But the concessions granted to the RN and the various compromises made with the “common base” groups over several weeks cast doubt on the Prime Minister's ability to keep his promise.

“The adjustments that are underway, and which go in both directions, call into question neither our objectives nor our commitments,” Michel Barnier assured Thursday in Le Figaro. “We are doing everything to stay around 5%” deficit in 2025, he added.

A little over 10 billion euros in concessions…

Let's try to do the math. On Thursday, Michel Barnier announced that he was refusing to increase electricity taxes beyond their level before the price shield against inflation. He also confirmed that reductions in business charges would not be reduced for salaries up to 2.25 SMIC.

With the two major announcements alone, the government is losing almost 6 billion euros compared to its draft budget. In fact, the increase in electricity taxes was expected to bring in 3.4 billion euros. The overhaul of reductions in employer contributions was expected to generate savings of 4 billion for Social Security. It will ultimately be 1.6 billion.

Added to this is the compromise found with the right to upgrade pensions. Originally, the draft Budget provided for a total freeze on pensions between January 1 and July 1, 2025. Finally, all pensions will be increased on January 1 to the tune of half of inflation. The smallest pensions will also benefit from a catch-up on July 1st. Which should cost between 500 and 800 million euros.

The government has also significantly reduced the budgetary effort requested from communities: it should be 2 billion euros, instead of 5 billion. We can also add the concessions on credits granted to the Ministries of the Interior, Justice or Culture which should increase the bill by 750 million euros.

Ultimately, all these adjustments would represent an additional cost of just over 10 billion euros compared to the government's initial copy.

…but some additional revenue and savings

Alongside these costly concessions, the government is painfully trying to balance its budget, seeking savings and additional revenue and avoiding tax overbidding. Speaking to Le Figaro, Michel Barnier announced on Thursday a “significant” reduction in state medical aid (AME) for illegal immigrants “next year”. On this point, senators have already voted for a saving of 200 million euros. It remains to be seen whether the government will want to go further.

The government also wants to refocus the research tax credit system on businesses. But it turns out that the Senate is working on it at the moment for a return of 400 million euros.

Finally, the Upper House also voted for an increase in gas tax, for 1 billion euros. We will have to see if the government maintains this measure, now that it has backed down on electricity.