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French budget aims to bridge wide divisions

PM plans to raise taxes, cut spending but is facing opposition from all sides

By MOHAMMAD ARIF ULLAH in Paris For China Daily | China Daily Global | Updated: 2024-10-14 09:32
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French Prime Minister Michel Barnier delivers his general policy speech at the National Assembly in Paris, France, Oct 1, 2024. [Photo/Agencies]

French Prime Minister Michel Barnier presented a draft finance bill for 2025 to the Council of Ministers on Thursday, proposing measures to cut public spending and increase taxes in an effort to reduce the public deficit to 5 percent of GDP by next year.

The plan outlines 60 billion euros ($66 billion) in savings, comprising 40 billion euros in spending cuts and 20 billion euros from tax increases on high earners and some 400 large companies, and is seen as a pivotal act that sets the course of Barnier's government.

It also calls for a reduction of France's civil service payroll, as well as a freeze on regular increases in pensions.

The budgetary package aims to curb the public deficit, which is projected to reach 6.1 percent of GDP this year.

Credit ratings agency Fitch revised France's outlook to "negative" from "stable" on Friday, while maintaining the country's rating at "AA-". Finance Minister Antoine Armand responded on Friday evening, saying he had "taken note" of the decision.

However, the High Council of Public Finance issued a warning on Thursday, expressing doubts about whether the 5 percent deficit target could be met, citing "high risk" because of overly optimistic assumptions in the budget.

Philippe Aghion, an economist and professor at the College of France, expressed support for the budget on Franceinfo TV on Thursday, saying it manages to "share the effort so that it is accepted".

He emphasized the balance of the plan, saying: "It's not austerity, and at the same time it's a serious adjustment of the accounts."

Nevertheless, many political groups, from the left to the far right, have voiced opposition to the austerity measures. Critics are particularly concerned about the effect on the middle and working classes, with some provisions, such as the pension freeze and increases in electricity taxes, generating considerable backlash.

Marylise Leon, general secretary of the trade union CFDT, criticized the government's decision to reduce aid for companies offering apprenticeships during an interview on French radio station RMC on Friday.

"I don't want civil servants to be made into scapegoats," she said, adding the move would limit "windfall effects".

Divided parliament

Another contentious issue is the cut in teaching posts, with 4,000 positions targeted for elimination by next year. About 2,200 jobs would be cut within the state through a mix of reductions and reallocations. Leon condemned these plans, calling them "incoherent".

The budget's political future is uncertain in France's divided parliament, where no party holds a majority. The left-wing opposition plans to revise Barnier's budget, pushing for higher taxes on the wealthy and increased state revenue.

Eric Coquerel, president of the National Assembly's finance committee, wants to reshape the "austerity" budget to align with the left-wing alliance New Popular Front's priorities.

At the same time, the right and some of President Emmanuel Macron's centrist allies have protested against the tax hikes, while the absence of an absolute majority in the National Assembly has cast doubt on whether the bill would pass without significant amendments.

Adding to the complexity, the potential use of Article 49.3 of the Constitution has been floated as a way to push the bill through parliament. This provision allows the government to bypass a parliamentary vote and pass the bill directly. Former prime minister Elisabeth Borne used Article 49.3 10 times during her term, sparking widespread criticism and controversy.

Economist Anne-Sophie Alsif also weighed in on Thursday, appearing on France 5 TV to highlight the importance of household consumption to the French economy.

"France's main contribution to growth is household consumption," she said, adding that this was a key factor in preventing the country from falling into recession during the COVID-19 pandemic, unlike many other countries.

The proposed increase in electricity taxes has been especially controversial. Nicolas Goldberg, an energy partner at Colombus Consulting, described the plan as "absurd".

"We no longer understand what's going on," he said.

Despite this, the government is determined to push the budget through in some form, but whether Barnier will choose to force the bill's passage through Article 49.3 or seek compromise in parliament remains unclear.

The writer is a freelance journalist for China Daily.

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