France's 2025 Budget Plan is Ambitious; But What Do Economists Have to Say?

This Thursday, the French Government released its budget plan for the big 2025, featuring massive spending cuts and tax hikes totaling a whopping 60 billion euros, designed in order to tackle the country's massive deficit. The plan aims to reduce the budget deficit to 5% of the GDP by the end of next year, with a long-term goal of fulfilling the Maastricht Treaty's 3% deficit rule by the year 2029

Antoine Armand, the Minister of the Economy, Finance, and Industry, along with Laurent Saint-Martin, the Minister in charge of the budget, highlighted the genuine urgency in the situation.

In their legislation, they wrote "The state of our public finances is grave", warning that without change, the public deficit may reach a gargantuan 7% of the GDP by the end of 2024. However, despite late-stage efforts to curb the rising debt and interest costs, economists have expressed their doubts about the government's ability to rein in such a massive deficit in such a small timeframe.

The 2025 Finance Bill outlines a massive 41.3bn Euros in spending reductions and 19.3bn Euros in new tax revenues. Savings include 21.5bn Euros via cuts to state spending, and 14.8bn Euros will be generated via restoring the health of Social Security while 5bn Euros will be saved by moderating local expenditure. The Ministry of Education is set to see the largest reduction in headcount, with 4000 employees on the chopping block. The government also wants to raise 19.3bn Euros through large temporary taxes to businesses and the wealthy. The government has committed to an extremely strict rule; "For every euro of additional revenue, we will save two euros in spending," said Armand and Saint-Martin.  Some economists have already flinched with caution and skepticism about the feasibility of France's plan.

An economist at BoFA, Ruben Segura-Cayuela stated, "The budget plan looks a tad more ambitious than expected, but too much ambition probably makes it less credible." He noted that some of the parts of the adjustments remain "very opaque" and criticized the lack of clarity for fiscal trajectory for the long term. He also raised skepticism about approval.

Alexandre Stott, an economist at Goldman Sachs, also mentioned that "The magnitude of the proposed consolidation and the corresponding reliance on tax increases leaves us less confident in the ability of the government to meet its 2025 deficit target of 5.0%." 

Contrarily, Stephane Colliac, an economist at BNP Paribas, sees it differently. "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. He also noted that spending cuts over tax cuts have been seldom used, 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."

Subscribe to stay in the loop. Invest well!