Public finances: France faces a wall of savings

Presenting himself as the guarantor of budgetary orthodoxy, the resigning Minister of Finance, Bruno Le Maire, has constantly repeated in recent months his determination to gradually reduce France's public deficit until it falls by 2027 to just below the ceiling of 3% of gross domestic product (GDP) set by European rules.

The host of Bercy for seven years had announced 25 billion euros of savings from this year, but only 10 billion were materialized before the early legislative elections.

Largely insufficient, warned the General Directorate of the Treasury in a note dated July consulted by AFP.

Without additional measures, the public deficit is expected to slip further, after reaching 5,5% of GDP in 2023 and earning Paris an excessive deficit procedure from the European Commission.

This deficit could reach 5,6% of GDP this year (against 5,1% currently forecast), due to the unexpected surge in local authority spending and disappointing tax revenues.

Still assuming the absence of recovery measures, it would then drift to 6,2% in 2025 (against 4,1% planned) and even 6,7% in 2026 (against 3,6%) then 6,5% (against 2,9%) in 2027.

"A return of the deficit below 2027% by 3", as planned in the multi-year trajectory of public finances transmitted by France to Brussels in the spring, "would require achieving savings of around 110 billion by 2027", warns the Treasury.

In front of the press, the general rapporteur of the Senate Finance Committee, Jean-François Husson, was offended, describing the government's budgetary policy as "catastrophic".

"The trajectory presented by the government was false," he said. Accusations rejected by the Minister Delegate for Public Accounts, Thomas Cazenave.

Deadline October 1st

As early as 2025, significant savings could be made, the Treasury emphasizes.

The deficit target for 2025 (4,1%) will be "very difficult to achieve" since it involves finding "more than 60 billion euros in savings" in the draft budget, he calculates.

The 2025 finance bill must be submitted to Parliament by October 1 at the latest, a deadline that the chairman of the Senate Finance Committee, Claude Raynal, has called for to be respected.

Even in the event of "minimal" compliance with the new European budgetary rules, and if France is authorised by Brussels to extend its adjustment period to seven years instead of four, more than 30 billion euros of savings would be necessary in 2025 and around 100 billion by 2028.

In this scenario, the return of the public deficit below 3% would only occur in 2029, "a horizon which risks being judged too distant by the Commission and the Council", warns the Treasury.

While few new revenues are envisaged, avenues for budget cuts have been identified, formulated within the framework of spending reviews ordered by the outgoing executive.

Regarding aid to businesses, a report from the General Inspectorate of Finance (IGF) consulted by AFP estimates that 3 billion could be released from the Research Tax Credit (CIR), by removing reduced excise rates on biofuels or diesel used by public road transport, or by giving up funding for business support missions by Chambers of Commerce and Industry.

Removing certain reduced VAT rates and raising the reduced rate from 10% to 12,5% ​​would bring in 7 billion euros.

Another report identifies 2,5 billion euros of cash surpluses by examining 180 State operators out of 408. Concerning absenteeism in the civil service, the introduction of a second and third waiting day would save almost 300 million euros.

The Treasury also lowered its growth assumptions to 1% for 2025 (against 1,4% forecast by the government) and 1,5% in 2026 and 2027 (against 1,7% and 1,8% respectively).