The draft budget plan will be under intense scrutiny by the EU Commission after Brussels formally warned France of its excessive budget deficit back in June.
The French government has unveiled its draft budget plan for 2025 on Thursday in Paris during a press conference.
It’s a touchy subject considering France’s staggering deficit is projected to reach more than 6% of its GDP by the end of the year – higher than almost all other European countries.
French Prime Minister Michel Barnier’s new government is under pressure from financial markets and the European Union to balance its budget.
The long-term goal of these cuts is to bring the deficit down to 3%, according to EU budget rules.
The government’s goal is to slash €60bn in 2025 alone – or 2% of its GDP – an unprecedented amount.
The measures should bring the country’s deficit down to 5 per cent of its GDP next year, according to French authorities.
The newly nominated Minister of the Economy, Antoine Armand announced a dizzying €40bn in public spending cuts that will cover all ministries – an unpopular measure within the government.
Antoine Armand promised these cuts would not stifle economic growth or impact middle-class households and lower incomes.
Education will be the most impacted sector
The State will be the most impacted with more than €20bn in spending cuts.
“We need to do better with less staff. We are proposing around 2,200 job cuts, divided between ministries and State operators,” said the Budget Minister, Laurent Saint Martin, who promised “targeted reductions” and “not indiscriminate cuts.”
The education sector will be the most impacted sector with more than 4,000 teaching positions to be slashed.
On the other hand, the Minister of the Budget promises “substantial increases to strengthen sovereignty and security, particularly in the Justice sector and the Armed Forces.”
The budget of the Sports Ministry will also suffer from substantial cuts justified by the end of the Olympic Games period.
‘Exceptional and temporary’ tax hikes
The rest of the €20bn will come from “exceptional and temporary” tax hikes.
The tax increase will concern the wealthiest incomes (above €250,000 a year for a single person) for three years. This measure should generate an additional €2bn euros in 2025.
More than four hundred of the highest-earning corporations that have a turnover of more than €1bn will be subjected to a 20% corporate tax.
This tax should bring in €8bn in 2025. Its scale will be reduced the following year, to bring in €4bn in revenue in 2026.
However, the High Council for Public Finances, an independent institution, described the draft budget plan as overly optimistic.
A tax on airline tickets
The aviation sector will also pay a price with tougher ecological penalties and a tax on airline tickets.
On the energy side, the electricity tax (TICFE), which had been reduced during the energy crisis, will increase in February.
It used to be around €33 euros per MWh. In 2025, the price will increase to “around 50 euros per MWh”, announced the Ministry of the Economy, assuring the electricity bills won’t increase for most households due to a drop in market price.
Although the government claimed it is open to debate within parliament, the current fragmented political landscape could push Prime Minister Michel Barnier to adopt the text without a vote, using the controversial Article 49.3 of the French constitution.
