Budget 2025: 40 billion savings, tax increases… the projects of Michel Barnier's government

Pension indexation postponed, health spending better controlled, taxation of polluting transport: to straighten out public finances that are adrift, the government is planning an effort of 60 billion euros in its draft budget for 2025, which it will present on October 10 with an unprecedented delay.

The outlines of the next draft finance bill are beginning to take shape, the day after Prime Minister Michel Barnier's general policy speech.

Submitted for opinion on Tuesday to the High Council of Public Finances, attached to the Court of Auditors, the particularly complex text will be presented to the Council of Ministers and to Parliament more than a week after the legal deadline of October 1, after a schedule disrupted by the early legislative elections.

The social security financing bill (PLFSS) will also be presented on October 10.

To reduce the deficit to 5% of gross domestic product (GDP) in 2025, after an expected increase to 6.1% this year, the government is planning an overall effort of 60 billion euros next year which will be supported by all public administrations, according to a source governmental.

More than two-thirds of the amount, or €40 billion, will come from spending cuts and just under a third (€20 billion) from tax increases.

“Tax Justice”

On the spending side, just over €20 billion in savings will be made by the State. The non-revaluation of appropriations based on inflation will result in a reduction of around 15 billion euros for expenditure, while additional savings of 5 billion euros will be requested from ministries and State operators will have to curb their expenditure by 1 billion euros.

Around a third of the savings concern social expenditure, with the flagship measure being the postponement of the indexation of pensions from 1 January to 1 July. The amount of the expected savings has not been specified.

Even if it remains higher than inflation, the increase in health insurance spending will be more controlled.

Local authorities will have to smooth out their spending, after being accused by the outgoing government of having contributed to the slippage of the public deficit in 2024.

Michel Barnier highlighted on Tuesday the "colossal" public debt of France, "a real sword of Damocles" which, if nothing is done, risks placing the country “on the brink”.

Seeing in the reduction of expenditures “the first remedy” to the debt, he also announced that a participation would be requested from “large companies that make significant profits” and from the “wealthiest French people”, in the name of "tax justice".

The Minister of Economy and Finance Antoine Armand reaffirmed on Wednesday that the least fortunate taxpayers and medium-sized businesses would be spared, and insisted on the fact that the tax increase would be "temporary".

Polluting transport

From the same government source, it is added that measures aimed at greening the economy are also planned in the draft budget, with 1.5 billion euros in favor of the transition ecological. They would target in particular highly polluting transport, with in particular a penalty for thermal vehicles, while the French aviation sector expects to be taxed an additional billion euros.

Pinned down for excessive deficit by Brussels and in the sights of the rating agencies which will rule on its sovereign rating in the coming weeks, France saw its debt swell to 3,228.4 billion euros, or 112% of GDP, at the end of June. This is the highest level of debt in the EU, ahead of Greece and Italy.

General government debt is expected to reach almost 113% of GDP in 2024 and flirt with 115% next year, before gradually decreasing as the deficit falls to less than 3% of GDP in 2029, two years later than what was previously promised to the EU.

GDP growth is expected to be 1.1% in 2025, as this year, partly affected by the recovery measures, while inflation would fall from 2.1% to 1.8% on an annual average, boosting household purchasing power.

Some measures in the draft finance bill will be introduced by government amendments during the parliamentary debate. The timetable was becoming too tight to do otherwise because Parliament must have 70 days to debate the budget and the Constitutional Council must have five days to study the probable appeals, with a view to promulgating the law before 1 January 2025.