Financial Insights That Matter
Posted By Global Banking and Finance Review
Posted on January 24, 2025
PARIS (Reuters) -France’s new government aims to squeeze around 50 billion euros ($52 billion) in savings out of the 2025 budget, Finance Minister Eric Lombard said on Monday, setting a lower target than his predecessor.
Lombard said that an easier belt-tightening effort was necessary in order to preserve economic growth, adding the budget bill currently being drafted would target a deficit in a range of 5.0% to 5.5% of gross domestic product (GDP).
The previous government, which collapsed last month after opposition parties rejected part of its 2025 budget, had hoped to reduce the deficit to 5% this year from 6.1% in 2024.
“We have to support the economy. I’m thinking about companies that are lacking confidence, we can’t hold growth back,” Lombard told France Inter radio.
Lombard began consultations with opposition parties on Monday in an effort to preemptively win support before proposing the new budget bill in hope of avoiding a no-confidence vote like the one that brought down the previous government in early December amid a backlash against its belt-tightening proposals.
France’s failure to pass a 2025 budget has spooked investors and ratings agencies, but the savings needed to get France’s public finances in line have proven too much for lawmakers in the deeply divided parliament. The previous government headed by Michel Barnier had targeted savings totalling 60 billion euros.
To pass its budget, the new government will likely need support in particular from the Socialists, who have been pushing for higher taxes on the wealthy and on big companies.
Lombard said the new bill would not create new taxes that were not already in the failed budget but that it would rework a planned additional tax on France’s biggest companies with the aim of bringing in about 8 billion euros as well as a tax hike on the wealthiest taxpayers.
He added he was open to increasing a 30% flat tax on capital gains and income introduced by President Emmanuel Macron in 2018 to make France more attractive to global investors. The flat tax spurred criticism of Macron as a president for the rich.
($1 = 0.9678 euros)
(Reporting by Dominique Vidalon and Leigh Thomas;Editing by Sudip Kar-Gupta and Gareth Jones)
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