PARIS, Sept 17 (Askume) – French Prime Minister Michel Barnier must immediately draw up a 2025 budget as soon as his new finance minister is appointed, a move that could determine the success or failure of the new government.
Whoever Barnier chooses will have to figure out how to plug holes in public finances, submit a draft budget by Oct. 1 and then guide it through a deeply divided parliament.
Any wrong move could anger the opposition, which could topple the government if it unites to pass a no-confidence motion.
Here are five questions the new finance minister needs quick answers to:
Raise taxes or cut spending?
If no measures are taken to control it, France’s public sector budget deficit will widen to 6.2% of economic output next year, with tax revenues lower than expected and local government spending rising.
So the new administration will have to decide how to balance tax increases and spending cuts without angering the far left or the far right.
As a conservative, Barnier is likely to prefer spending cuts, though relying solely on austerity could endanger growth in the euro zone’s second-largest economy.
Barnier said France needed more “tax justice” and suggested targeted tax hikes were possible, even though they were forbidden under President Macron’s previous governments.
Where will the axe of expenditure fall?
Outgoing Finance Minister Bruno Le Maire has warned that France will need to save 30 billion euros this year and next to meet its deficit reduction target, though that looks unlikely.
A recent spending audit by the Treasury found potential savings of over €12 billion in company subsidies and tax breaks, medical equipment, long-term illness care, public sector absenteeism and training schemes and apprenticeships.
More money could be saved by measures such as not increasing pensions or civil service pay in line with inflation, although this would anger the opposition.
Which taxes can be increased?
If tax hikes are included in the 2025 budget, Finance Minister Barnier could adopt Le Maire’s proposal to raise special taxes on energy companies and corporate stock buybacks.
Tax revenue could also be raised by reducing tax deductions for short-term rentals on platforms such as Airbnb, as well as corporate research and development spending.
Should France maintain its deficit reduction target?
Ultimately, as the budget bill passes Parliament, the combination of spending cuts and tax hikes may not please the opposition.
This would leave the finance minister no choice but to go against the outgoing government’s sacred goal of reducing the budget deficit to the EU limit of 3% of GDP by 2027.
If the European Commission and France’s EU partners give it more time to adjust, Paris could make small spending cuts and tax hikes that would ease the economic burden.
How should France treat its EU partners?
If France is given more time to reduce its deficit, the new finance minister will need to negotiate new targets with Brussels and win the support of other euro zone countries, especially Berlin.
However, France’s eurozone partners may be reluctant to give Paris more time unless Barnier’s government commits to growth-boosting economic reforms.
Even that might not be enough, given France’s poor record in complying with EU deficit rules and the risk that opposition parties could topple Barnier’s government.
