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The French draft budget for 2025 was finally . As the government of prime minister Michel Barnier was appointed only on 21 September, the new finance and budget ministers, Antoine Armand and Laurent Saint-Martin, had little time to put together their proposals. Many revenue and expenditure features of the new draft budget are defined in rough terms only, and modifications will no doubt be introduced when the parliament discusses the plan.

Barnier does not command a majority in parliament. The political parties that support him hold only 213 seats, far below the absolute majority threshold (289). Moreover, their coalition is not based on a substantive agreement and several coalition members already started voicing concerns about Barnier’s budgetary choices. The budget is most likely to be pushed through using a special procedure that deems a bill adopted if not rejected by a majority of MPs.

As France’s fiscal situation had deteriorated markedly since the beginning of the year – with a fiscal deficit projected to reach 6.1% of GDP in 2024, instead of 4.4% envisioned in the 2024 Budget law – Barnier faced a trilemma. He needed to avoid: 

• Losing the trust of the bond market altogether;
• Pushing the economy into recession; 
• Squandering President Emmanuel Macron’s supply-side legacy.

Judged against these criteria, Barnier’s draft budget is a rather skilful balancing act. 

The deficit is projected to be 5% of GDP in 2025, a forecast . It has to be seen if the new taxes and spending cuts that underpin the government’s outlook will survive the parliamentary debate. Most likely, there will be further significant corrections until the budget is passed, but its essentials will remain. Markets and EU institutions will likely be satisfied to see that action is being taken, but provided a path forward has been chartered. As , however, the plans remain sketchy, both fiscally and structurally.

On paper, the 1.2% of GDP adjustment proposed by Barnier looks large enough to kill the precarious recovery that is under way, and it would have killed it if the adjustment had taken the form of outright cuts in public spending and social transfers. But a closer look at the policy levers mobilised suggests the short-run macroeconomic impact could be more limited than indicated by the headline figure.

Tax hikes on business (about €10 billion) and on wealthy individuals (€2 billion) won’t impact aggregate demand in a significant way. Nor will cuts to the existing rebate on employers’ social security contributions (€5 billion) have a meaningful impact. The increase in electricity taxes (€2 billion), meanwhile, will be more than offset by the projected decline in energy prices. The upshot is that a large part (about €20 billion) of the adjustment is unlikely to hurt demand meaningfully.

The government announced that two thirds of the adjustment would come from spending cuts and one third from revenue measures, but the fiscal watchdog has assessed the true composition of the adjustment to be 70% new taxes, 30% expenditure cuts. This major discrepancy arises from differences in the baseline projection used as a reference to compute the composition of the adjustment, rather than from different assessments of the policy measures themselves. The truth is closer to the watchdog’s assessment than to the government’s presentation.

The risk, then, is that a major tax-based consolidation will squander Macron’s legacy and affect the supply side negatively. For this not to happen, business and investors should believe taxes are actually temporary and forgive Barnier for having introduced them as a temporary fix.

If deeds are to follow words, the moment of truth will come next year, as the fiscal adjustment must continue and become truly structural. According to the draft, the tax hikes on business should be cut in half in 2026 and eliminated in 2027, to be substituted with structural expenditure reductions or other tax increases. Judging from the vagueness of the commitments thus far – such as the €6 billion expected from unspecified spending cut measures pencilled in for 2025 – the bar will be high. In a politically precarious situation, defining and implementing an expenditure-based fiscal consolidation strategy for the medium term is bound to represent a major challenge. France has, in fact, little track record in this regard.

The upshot is that Barnier’s policy goes in the right direction, but the roadblocks ahead are significant. If he will succeed in pushing this draft budget through parliament is uncertain. It will be even more challenging to chart out a medium-term reform and fiscal consolidation strategy.