How emergency finance law can prevent France shutdown
Temporary legislation needed after government collapsed, rendering 2025 budget bill invalid
11 December 2024 - 16:05
byLeigh Thomas
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Paris — France’s outgoing government presented on Wednesday emergency legislation to allow the state to keep spending, collect taxes and issue debt from the start of next year in the absence of a proper budget bill.
The temporary legislation, which parliament is due to vote on next week, is needed to avoid a US-style government shutdown at the start of the year after Prime Minister Michel Barnier’s government collapsed last week, rendering its 2025 budget bill invalid.
It is intended to act as a stopgap until France’s deeply divided parliament passes a more permanent budget bill drafted by a new government, most likely in early 2025.
WHAT’S THE IMPACT ON SPENDING?
The emergency legislation allows the government to issue decrees that would roll over spending limits from 2024 into 2025, effectively freezing most spending at current levels without adjusting for inflation.
One important exception is pensions, which by default increase with inflation, which means a 2.2% increase from January at a cost of €6.5bn.
Meanwhile spending for some one-off investments, grants and subsidies cannot be made until a proper budget bill is passed next year, finance ministry officials said, pointing to the example of tax breaks that had been promised to farmers.
WHAT’S THE IMPACT ON TAX?
The temporary law only allows for existing taxes to continue to be collected, which means tax brackets cannot be adjusted for inflation, potentially subjecting 380,000 households to income tax who are currently exempted.
It also means that tax hikes on the largest companies that Barnier’s government had planned in its failed budget bill cannot cover their 2024 profits even if new budget includes similar measures.
WHAT’S THE IMPACT ON DEBT ISSUANCE?
Though the temporary law does not specifically set a target, the outgoing government still expects France to issue a record €300bn in medium and long-term bonds next year net of buybacks.
However, that could be adapted in accordance with the state’s updated financing needs in a new budget bill next year.
The stopgap law also allows social security financing bodies to keep borrowing on capital markets.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
How emergency finance law can prevent France shutdown
Temporary legislation needed after government collapsed, rendering 2025 budget bill invalid
Paris — France’s outgoing government presented on Wednesday emergency legislation to allow the state to keep spending, collect taxes and issue debt from the start of next year in the absence of a proper budget bill.
The temporary legislation, which parliament is due to vote on next week, is needed to avoid a US-style government shutdown at the start of the year after Prime Minister Michel Barnier’s government collapsed last week, rendering its 2025 budget bill invalid.
It is intended to act as a stopgap until France’s deeply divided parliament passes a more permanent budget bill drafted by a new government, most likely in early 2025.
WHAT’S THE IMPACT ON SPENDING?
The emergency legislation allows the government to issue decrees that would roll over spending limits from 2024 into 2025, effectively freezing most spending at current levels without adjusting for inflation.
One important exception is pensions, which by default increase with inflation, which means a 2.2% increase from January at a cost of €6.5bn.
Meanwhile spending for some one-off investments, grants and subsidies cannot be made until a proper budget bill is passed next year, finance ministry officials said, pointing to the example of tax breaks that had been promised to farmers.
WHAT’S THE IMPACT ON TAX?
The temporary law only allows for existing taxes to continue to be collected, which means tax brackets cannot be adjusted for inflation, potentially subjecting 380,000 households to income tax who are currently exempted.
It also means that tax hikes on the largest companies that Barnier’s government had planned in its failed budget bill cannot cover their 2024 profits even if new budget includes similar measures.
WHAT’S THE IMPACT ON DEBT ISSUANCE?
Though the temporary law does not specifically set a target, the outgoing government still expects France to issue a record €300bn in medium and long-term bonds next year net of buybacks.
However, that could be adapted in accordance with the state’s updated financing needs in a new budget bill next year.
The stopgap law also allows social security financing bodies to keep borrowing on capital markets.
Reuters
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