France plans 60 billion euro budget squeeze for next year

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By Leigh Thomas

PARIS (Reuters) -The French government plans to subject the budget to a 60 billion euro belt-tightening drive next year to hit new fiscal targets, officials said on Wednesday, outlining an unprecedented push to rein in France’s spiralling deficit.

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

Three government officials involved in preparing the 2025 budget said the 60 billion euro ($66 billion) squeeze – equivalent to roughly 2% of GDP – was needed to correct the deficit from where it would otherwise have been if nothing had been done.

“The only way to get there is if everybody contributes to this effort (to cut) spending, every public body, services need to be reorganised within the government, municipalities and social services,” Finance Minister Antoine Armand told RTL radio.

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 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.

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.

Tax increases, which Armand insisted would only be temporary and hit big companies and wealthy households, are to be detailed when the 2025 budget is sent to lawmakers on Oct. 10.

“The 60 billion euro number seems to be a bit big, it’s very ambitious,” public finances expert Francois Ecalle told Reuters, calling into question how the government would find savings of that magnitude.

The government 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%, the same as this year, and that inflation would average 1.8% this year after 2.1% this year.

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

($1 = 0.9046 euros)

(Reporting by Leigh ThomasEditing by Alexandra Hudson)