Tax hikes and spending cuts needed to fix French deficit, spokesperson says

Paris — Targeted tax rises and spending cuts will be required to narrow France’s gaping budget deficit, the government said on Tuesday, as French media reported Prime Minister Michel Barnier was set to outline plans to boost the tax take by billions of euro.

Barnier, appointed last month, was to outline his plans in a speech to parliament at 3pm. He faces the challenging task of plugging a huge hole in public finances while the fragmentation of parliament and infighting in his minority government will make it hard to push through reforms.

At stake is France’s credibility with its EU partners and in financial markets, as its borrowing costs have surged.

“First and foremost, we need to reduce public spending. And this reduction in public spending will constitute the major part of the effort,” spokesperson Maud Bregeon told a press conference.

“There’s no question of across-the-board tax increases, and even less of tax increases that would hit the working and middle classes. On the other hand, should a targeted, one-off, temporary effort be part … of the overall solution? We think so.”

According to Le Parisien newspaper, Barnier was considering tax hikes of €15bn-€18bn.

They reportedly included an additional €8bn through taxes on corporations, and the imposition of an additional €3bn levy on energy companies and share buybacks.

The plans also include raising income taxes for top earners to bring in about €3bn, and increasing electricity taxes for another €3bn, Le Parisien said, without citing sources.

Push back

Barnier’s office did not reply to a request for comment on the figures.

The report suggested that Barnier intended to push back the target date for reaching the eurozone’s common 3% deficit goal to 2029 from 2027.

Emmanouil Karimalis, macro rates strategist at UBS, said reports that Barnier was considering tax hikes was likely aimed at reassuring investors about French debt and helping other longer-dated bonds.

France’s 10-year bond yield fell 11 basis points (bps) to 2.813%, helping to reduce the premium over the equivalent German yield to 76 bps.

Budget minister Laurent Saint-Martin said last week that the budget deficit could exceed 6% of economic output this year, much worse than the 5.1% forecast in the spring.

Despite looking like the most unstable French administration in recent history, despised by the left and propped up by the far-right, Barnier’s fragile minority government may last longer than many think, legislators and analysts said.

Marine Le Pen’s far-right National Rally, which could join forces with other disgruntled parties to topple the government at will, probably has no real interest in owning an even bigger mess that might damage its presidential hopes in 2027.

That does not mean it will be easy, especially to pass the 2025 budget, which Barnier needs to finalise within days and hand to legislators by mid-October at the latest.

“It is not clear who will be the most obstructive towards implementing his programme: coalition partners or the opposition,” Eurointelligence analysts wrote in a note.

Reuters