France plans spending cuts, tax hikes to ease budget deficit

France is set to implement approximately €60 billion ($66.4 billion) in spending cuts and tax hikes in 2025 as Prime Minister Michel Barnier aims to reduce the budget deficit from around 6.1 per cent to 5 per cent of economic output.

During a briefing on Wednesday, government officials revealed that over two-thirds of the savings will stem from spending cuts across ministries, local authorities, and the social security system.

The remaining funds will be generated through temporary tax increases on wealthy individuals and large companies, along with heightened green taxation.

Following the announcement, the yield spread for French debt over German bonds decreased by one basis point to 78 basis points, although it remains near a decade-high.

Barnier faces challenges in balancing the budget amid a tenuous coalition government lacking a parliamentary majority, leading to investor concerns over political stability and deficit reduction.

The budget will be presented to the Cabinet and parliament on October 10 for potential amendments, with Barnier likely resorting to a constitutional mechanism to bypass a vote if necessary.

This move could trigger a no-confidence motion from opposition lawmakers, risking the stability of his administration.

Among the proposed measures are delays in pension indexation and limiting healthcare spending increases to 2.8 per cent, down from an initial 3.2 per cent. The draft budget will initially target a deficit of 5.2 per cent of GDP, with further adjustments anticipated during parliamentary discussions.