France plans 60 billion euro budget squeeze for next year

Newswire

Paris: The French government plans to subject the budget to a 60 billion euro belt-tightening effort next year to hit new fiscal targets aimed at reining in a spiralling deficit, officials said this week.

Prime Minister Michel Barnier told lawmakers he would reduce the budget deficit – which is set to reach 6.1 per cent of GDP this year – to 5 per cent by the end of 2025 but would have to push back the target date for reaching the eurozone’s common 3 per cent deficit goal to 2029 from 2027.

Three government officials involved in preparing the 2025 budget said the 60 billion euro squeeze – equivalent to roughly 2 per cent of GDP – was needed to correct the deficit from where it would otherwise have been if nothing had been done.

Tax revenues have fallen short of expectations this year while the government has struggled to contain spending, leaving Barnier with the huge task of drafting a 2025 budget, due to be presented on Oct 10, that narrows the hole but can also get through France’s unruly hung parliament.

The stakes are considerable with Paris’ credibility with financial markets and its EU partners on the line after the European Commission earlier this year opened an excessive deficit procedure against France.

Barnier, appointed last month, said that two thirds of the belt-tightening push comes from spending cuts with the rest coming from targeted tax increases that would spare the average working person.

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One of the officials said that the spending reductions would cut across France’s various ministries, saving over 20 billion euros while separate spending on welfare, health and retirement would also take hits.

For example, pensions, a major expense on the public finances, will not be adjusted for inflation at the start of the year, but rather at the middle of the year.

The official said that the belt-tightening effort would keep France within the wiggle room allowed under the European Union’s fiscal rules and that reforms would be announced to show Paris’ commitment to remaining in line with the rules.

A second official said that the 2025 budget was based on the forecast that the economy would grow 1.1 per cent, the same as this year, and that inflation would average 1.8 per cent this year after 2.1 per cent this year.

Meanwhile, France’s public debt is expected to rise nearly 115 per cent of GDP next year from close to 113 per cent this year.