France's 2025 Budget Overview
By Leigh Thomas and Michel Rose
PARIS (Reuters) – France's government presented its 2025 budget on Thursday, planning to implement 60 billion euros (approximately $65.68 billion) in spending cuts and tax increases targeted at the wealthy and large corporations in response to a growing fiscal deficit.
Context
Prime Minister Michel Barnier's administration faces intense pressure from financial markets and European Union partners to take decisive action after tax revenues fell significantly short this year while spending exceeded forecasts. The budget aims to manage a fiscal squeeze equivalent to two percentage points of the national output, but must be delicately handled to avoid opposition party backlash that could lead to a no-confidence vote.
Key Goals
Finance Minister Antoine Armand emphasized the importance of the budget for reducing the deficit and managing national debt. The government aims to bring the public deficit down from 6.1% of GDP this year to 5% next year, with a target of reaching the EU's 3% limit by 2029.
Tax and Spending Proposals
Barnier's government will likely introduce a temporary surtax on large corporations and individuals earning over 250,000 euros annually to raise funds. While the middle class is spared directly, an electricity consumption levy will be reinstated for all taxpayers.
Despite calls for a pension postponement, the far-right National Rally has already influenced the budget process, emphasizing the tenuous alliance needed for support.
The budget would implement approximately 20 billion euros in cuts across various ministries, except for defense, interior, and justice, with welfare, health, pensions, and local government budgets facing reductions.
Economic Outlook
With France's national debt projected to reach nearly 115% of GDP, interest payments are expected to become the largest budgetary expense. There is skepticism about the budget's feasibility, as the national fiscal watchdog described its targets as “fragile” and overoptimistic.
Market Response
Investor confidence is fragile, especially after the perception of French risk increased following recent political shifts. Rating agencies are poised to reassess France's financial standing, with particular scrutiny from the European Commission regarding adherence to fiscal regulations.
Disclaimer: ($1 = 0.9136 euros)
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