New French prime minister Michel Barnier presented his 2025 budget yesterday (October 10), with a focus on making €60 billion worth of savings or tax increases in the coming years.
Around €40 billion of this figure came from spending cuts, including a change in how pensions are indexed, with the remaining €20 billion found through tax increases.
In particular, the wealthiest individuals and high turnover companies in France will face two to three years of additional taxes.
Changes to the social security budget will be announced separately later this month, but it is also expected to focus on cost-saving measures.
Both bills will be debated and voted on in France’s two main political chambers.
The savings are intended to help France’s deficit return to 5% of GDP (down from 6.1% currently). The longer term aim is to return to 3% as typically required of EU member states by 2029.
France’s public debt is €3,228.4 billion, around 112% of GDP and nearly double the maximum EU limit.
However, the advisory High Council for Public Finances (Haut conseil des finances publiques) has cast doubt on whether this is achievable.
On the other hand, it believes the 1.2% annual GDP growth the government is targeting is realistic.
Below, we look at the key changes announced in the budget:
‘Exceptional’ tax on the wealthy
The €20 billion raised in taxes will come partially from rises on very high income households, with middle-class and working-class people in France unaffected.
The 65,000 wealthiest tax households – those with an income of €250,000 per-year as an individual or €500,000 as a couple (around 0.3% of the total taxpayers in the country) will pay an ‘exceptional’ tax.
It will ensure they pay a minimum tax rate of 20% on their income – additional taxes will be imposed after usual income taxes and CEHR (contribuables assujettis à la contribution exceptionnelle sur les hauts revenus, a type of wealth tax) deductions to reach this level.
They will be levied for a period of three years.
However, a return of a general wealth tax (impôt de solidarité sur la fortune – ISF), which was reworked into a property wealth tax in 2017 by President Emmanuel Macron, has not taken place.
Read more: EXPLAINED: France’s property wealth tax 2024
The typical changes to income tax bands (linked to inflation) will take place – there was talk of them potentially being frozen for 2025.
Read more: Income tax: the new bands in France for 2025 after revision
Businesses also affected
Around 400 companies with sales in excess of €1 billion will pay more than the 25% rate of corporation tax, for up to two years, bringing in around €12 billion over the next 24 months.
The changes will be scaled, with companies making between €1 billion and €3 billion in sales paying one increased rate, and those making €3 billion or more taxed at a yet higher level.
Businesses are also set to see changes to government support, most notably in a three-year postponement of the reduction in the business value added levy (cotisation sur la valeur ajoutée des entreprises, CVAE), which will bring in just over €1 billion of savings.
A general reform of business support has been promised for the coming year, which aims at making companies increase the salaries of the lowest-paid employees, requiring the government to top-up the wages of fewer workers.
Support for apprenticeships (currently around €16 billion per year) and subsidised contracts will also be reduced.
Electricity tax, VAT on boilers
A tax on electricity consumption – which was reduced during the recent energy crisis – is to return, bringing in a reported €1.5 to €4 billion.
This will be brought in by decree and the exact figure was not included in the budget – but it is expected to increase to around €50 per MwH of energy used.
Prior to its reduction in 2022, the tax was around €32 per MwH of energy.
In addition, the VAT on installing boilers will increase to 20%, up from the current 5.5% or 10% (depending on boiler type). This will bring in around €200 million.
Read more: Electricity prices will reduce for most French households in January
Ecology taxes
An increase in the solidarity tax paid on airline tickets and private jet users will take place next year.
The exact figures are not known, as the tax hike has not been placed in the budget yet (it will be included as an amendment), but it is expected to raise an extra €1 billion.
‘Maluses’ on the most polluting vehicles – and the heaviest – will change to affect more cars over the next two years.
Vehicles that produce 113g of CO²/km will be liable to the malus (up from 118g of CO²/km now), and vehicles weighing 1.5 tonnes will also be hit with the weight malus (down from 1.6 tonnes now).
It means smaller vehicles currently exempt will be impacted.
These figures may again be reduced in 2026, said Mr Barnier.
Pensions
A postponement of the pension indexation – which sets and increases French pension rates based on the consumer goods index – to July 2025 (as opposed to January) will save around €3.6 billion.
This delay will avoid higher inflation rates affecting pension calculations in January 2025.
This would affect nearly 15 million people in France who are under the standard retirement regime with affected pensioners losing out on an estimated €15 per month between January and July.
The measure has faced criticism from politicians across the spectrum, including in Mr Barnier's own party and those of French President Emmanuel Macron, who are allied together in the Assemblée nationale.
Former Interior Minister and Macronist MP Gérald Darmanin called the measure "absurd", and far-right Marine Le Pen said it amounted to "stealing billions of euros from the elderly."
Cuts to public sector includes teaching jobs
The government is looking to make around €20 billion of savings from cutting back spending in the public sector.
The national education sector will see around 2,000 job cuts, mainly in primary education and maternelles (nurseries), equating to 4,000 fewer teaching posts.
The government justified the cuts by saying 97,000 fewer pupils will be enrolled into the education system in the next year.
The sports budget will also be reduced, largely as a result of the spending cycle for the 2024 Paris Olympic and Paralympic Games ending.
Other departments will also be hit by job losses - but not the Interior Ministry, which the government said would not see any cuts.
Defence and other areas left untouched by budget cuts
Defence Minister Sébastien Lecornu confirmed the budget for the Armed Forces would not change, with the ministry having a budget of €50.5 billion. This is set to rise to €69 billion by 2030.
The government promised the healthcare budget would remain untouched, with an extra €600 million going towards mental health. However, changes to social security are likely.
What next?
The budget, now it has been presented, will be debated in the Assemblée nationale, and subject to a vote of approval, before being passed onto the Senate for discussion.
If there is vast disagreement – this is unlikely, as the Senate is majority right-wing controlled and will likely approve of the budget – it will return to the Assemblée nationale to be discussed once more, where MPs will have the final vote.
In all likelihood, the right-wing budget will pass through the Assemblée nationale, even if the far-right have said they will not directly vote in favour of it.
However, if there are roadblocks, the budget can be forced through via the controversial article 49.3 without a vote, as it is deemed necessary for the good running of the country.
It leaves the government susceptible to a vote of no confidence. Mr Barnier survived the first motion of this kind earlier this week.
Read more: What is France’s article 49.3 and why is it back in the news again?
The budget must be published in the Journal Officiel and signed off by the French president no later than December 31 to come into effect in 2025.
