French finance ministry warns budget deficit at risk on tax shortfall

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PARIS (Reuters) – France, the euro zone’s second-biggest economy, could run a substantially bigger budget deficit than expected this year if extra savings are not found due to a shortfall in tax revenue, the finance ministry stated in a letter to lawmakers.

The country’s deteriorating finances, which have also put Paris into disciplinary proceedings at the EU level, add pressure on President Emmanuel Macron as he struggles to name a new government after snap elections lead to a hung parliament.

The financial strictures also reduce any new government’s policy leeway.

The finance ministry on Monday sent lawmakers an update on the budget situation that they had been demanding for weeks, leftist lawmaker Eric Coquerel, who heads the finance committee in the National Assembly, said in a late-night post on X.

The document indicated that the public sector budget deficit is at risk of reaching 5.6% of economic output this year rather than the 5.1% targeted by France’s current caretaker government, Coquerel said in a post on X. The deficit could reach as much as 6.2% in 2025, he added, citing treasury calculations.

Several key taxes including income, corporate and value added sales tax were all coming in weaker than expected, while the security crisis in New Caledonia and parliamentary snap elections this year caused additional expenses, he added.

“For the time being, (…) the finance ministry has frozen loans worth 16.5 billion euros protectively, while eying additional loan cancellations worth another 7 billion euros towards the end of the year”, Coquerel said, citing the letter.

The current outgoing government has had to prepare a budget that is likely to be reworked by its successor when it is finally formed.

“Tax income is lacking while expenses surge,” Veronique Louwagie, a conservative lawmaker from the LR Republicans party told Reuters on Tuesday.

($1 = 0.9033 euros)