What do economists think of France’s emergency debt crisis budget?

On Thursday, the French government unveiled a sweeping budget plan for 2025, featuring major spending cuts and targeted tax hikes totalling €60bn, aimed at tackling the country’s ballooning deficit.

The plan aims to reduce the budget deficit to 5% of GDP by the end of 2025, with a long-term goal of complying with the Maastricht Treaty’s 3% deficit rule by 2029.

Antoine Armand, minister for the economy, finance, and industry, and Laurent Saint-Martin, minister in charge of the budget, highlighted the urgency of the situation. 

“The state of our public finances is grave”, they wrote in the legislation draft, warning that, without decisive and immediate action, the public deficit could reach 7% of GDP by 2024.

However, despite these late-stage efforts to curb rising debt interest costs, economists have expressed doubts about the government’s ability to rein in such a large deficit within such a short timeframe.

France 2025 budget: Key measures proposed

The 2025 Finance Bill outlines €41.3bn in spending reductions and €19.3bn in new tax revenues.

Savings will include €21.5bn through cuts to state spending. Some €14.8bn will come from restoring the financial health of Social Security while €5bn will be saved by moderating local government expenditures.

The government’s plan also includes job cuts across various sectors to streamline public services and reduce operational costs. 

The Ministry of Education will see the largest reduction in headcount, with more than 4,000 job cuts planned.

In addition, the government plans to raise €19.3bn through exceptional and temporary tax contributions, with businesses and wealthier households bearing the brunt:

Some €13.6bn will come from increased taxes on businesses, while €5.7bn will be sourced from higher taxes on individuals.

The government has committed to a strict budgetary rule: “For every euro of additional revenue, we will save two euros in spending,” said Armand and Saint-Martin. 

Economic projections see growth at 1.1%, deficit to fall to 5%

Economic growth is projected at 1.1% for both 2024 and 2025, while inflation is expected to ease from 2.1% in 2024 to 1.8% in 2025.

Regarding public finances, the budget deficit is expected to worsen in 2024, reaching 6.1% of GDP, up from 5.5% in 2023. 

In 2025, the deficit is projected to fall to 5.0% of GDP, according to the new draft budget. 

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In nominal terms, the budget shortfall is expected to reduce by €31bn in 2025, bringing the deficit down to €135.6bn.

The country’s public debt which is projected to reach 114.7% of GDP by 2025, up from 112.9% in 2024.

Economists weigh in

Some economists have already reacted with caution and scepticism about the feasibility of France’s ambitious plan. 

Ruben Segura-Cayuela, economist at Bank of America, expressed concern, stating: “The budget plan looks a tad more ambitious than expected, but too much ambition probably makes it less credible.” 

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He noted that parts of the 2025 adjustments remain “very opaque” and criticised the lack of clarity about the fiscal trajectory beyond 2026. Furthermore, he raised some scepticism regarding its approval. 

Alexandre Stott, economist at Goldman Sachs, also flagged concerns: “The magnitude of the proposed consolidation and the corresponding reliance on tax increases leave us less confident in the ability of the government to meet its 2025 deficit target of 5.0%.” 

Stott suggested that France’s approach may face challenges: “Our previous research has found that abrupt adjustments and tax-based consolidations tend to have a lower chance of succeeding in improving the fiscal position sustainably.” 

As a result, Goldman Sachs now projects a 5.2% deficit for 2025, exceeding the government’s target, and has revised its economic growth forecasts for next year to fall below official estimates.

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Goldman Sachs expects that PM Barnier’s government will pass the budget bill by year-end. However, they note significant uncertainty beyond this point, with the possibility of new legislative elections after July 2025.

Stéphane Colliac, economist at BNP Paribas, sees a potential shift in public opinion in favour of austerity measures. 

“The perception of excessive public debt has matured in public opinion,” he observed, pointing to a recent Montaigne Institute barometer showing 39% of French citizens now consider debt reduction a “very urgent” issue – up 15 percentage points from last year. 

Colliac argued that prioritising spending cuts over tax increases could succeed where past attempts have failed, noting that such an approach has been “little tried in the past, especially during 2012-13, when the government raised revenues by 1% of GDP per year.”

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However, Colliac warned that with sluggish consumption and weakened corporate margins, there is now “low leeway” for further tax hikes without stifling economic growth.

Legislative timeline and next steps

The 2025 Finance Bill will follow a tight legislative schedule. The debate on the first part (revenue) in the National Assembly will take place between 21-25 October. Then, the vote on the Social Security financing bill is set for 5 November.

19 November marks the final vote on the 2025 Finance Bill, which will the be sent to the Senate for review, with the process concluding by 21 December, the constitutional deadline. If disagreements persist, the National Assembly will have the final say.

The Constitutional Council may be consulted to assess the constitutionality of the texts by the end of December.

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After the parliamentary phase, both the finance law and the social security financing law will be promulgated by the French president and published in the Official Journal no later than 31 December to take effect in January 2025.