Budget Logjam

This week’s flare-up over tax increases was likely a sideshow to the infighting over ministerial appointments. Yet the uproar caused even by the rumored willingness to raise taxes is a reminder of the real obstacles to tackling France’s fiscal woes. These range from the structural exhaustion of economic growth to chronically underfunded public services.

The spat between Barnier and the Macronists comes as the new premier faces the daunting task of drawing up a budget for 2025 and tidying up a 2024 budget that resulted in a deficit several tens of billions of euros bigger than expected. Barnier missed the September 13 deadline to submit a working version of the 2025 budget to the country’s audit authorities — releasing it almost a week later under opposition pressure. The documents, finally submitted on September 19, revealed the defense ministry as the possible winner of new budget allocations. The employment ministry faces the largest cuts, likely affecting things like job training and apprenticeship programs.

Constitutionally, the government is required to submit a preliminary draft of the budget by this October 1. Yet the prime minister’s office has suggested that that deadline, too, could be missed, given the difficulty in forming a government from the disparate forces in the National Assembly.

“There’s a power struggle between the Macronists and the Républicains,” said Nathalie Oziol, a France Insoumise MP from Montpellier. “We’re paying the price of the situation that Macron has put us all in by not appointing Lucie Castets [the NFP’s candidate] as prime minister this summer. Instead, he turned to one of the smallest parties in the National Assembly.”

Oziol is suspicious that Barnier’s alleged tax increases will amount to anything beyond window dressing for spending cuts, which will carry the real weight of the 2025 budget. “We’d first of all like to know just what that would mean,” she told Jacobin. “And not be kept in this gray area where the country’s way forward is being decided by an interparty battle.”

Getting a budget passed is likely to be the main fight in parliament this fall — and is also the primary reason for Barnier’s nomination. In opting for a figure from the center right, Macron’s priority was to block the NFP, whose platform includes the promise to repeal his 2023 increase in the retirement age and reverse the tax cuts on corporations and large fortunes since Macron’s election seven years ago. The president tapped Barnier to keep that legacy intact, at the price of deeper ties with the Républicains — and a government that will likely only survive if Marine Le Pen’s party abstains on censure votes.

Debt Bind

All signs now point to a heavy bout of spending cuts. On top of retroactive cuts worth upward of €25 billion to make up for the unexpected increase in the 2024 deficit, outgoing finance minister Bruno Le Maire had drawn up plans for €20 billion in further cuts for 2025. His draft plan also called for a slightly tightened windfall tax on energy firms and new fees on corporate stock buybacks. Though Barnier had been desperate to lure some figure from the center left into his cabinet, and thereby bolster his claim to represent a “national unity” government, he will likely take only minimal steps to increase the tax take.

In recent months, a raft of international organizations and domestic bodies have sounded the alarm about France’s budget deficit, which in 2024 reached 5.1 percent. In June, the European Union put France under investigation for breaching the bloc’s 3 percent deficit-to-GDP ratio target, which Macron and his allies have pledged to return to by 2027. If serious tax increases are off the table, then the lion’s share of that tightening must come from draconian public service cuts, likely hurting already cash-strapped schools and hospitals.

An important share of the increase in the French deficit since 2020 results from the spending packages in response to the COVID-19 and energy crises — deficit expansion that is now being reined in. But it also reflects the handouts to the superrich and corporations over the last seven years. These include the 2017 repeal of the ISF (Solidarity Tax on Wealth), a cut in corporate charges from 33 to 25 percent, a 30 percent flat tax on capital gains, and other lowered fees. In his September 12 farewell speech at the finance ministry, Le Maire celebrated the revenue cuts enacted since 2017, which he claims amounted to €55 billion in lowered taxes. “France must not go backward on taxes,” said Le Maire, the longest-serving minister of the Macron era.

“It’s no longer sustainable. It’s a mystery how Bruno Le Maire was able to keep this going for so long,” said Layla Abdelké Yakoub of Oxfam France, who is lead author of the NGO’s recent report on loopholes in France’s tax code:

There ought to come a moment when we say, “We just need more money to keep our public services afloat.” Without even raising the question of the green transition, we need more funds. And that even says nothing of the question of deficits.

The left-wing NFP is today the only bloc in parliament offering a change in direction. In addition to restoring Macron era tax cuts like the ISF, the left-wing parties want to expand liabilities on the largest fortunes, make the code more progressive by adding higher tax brackets, and enact climate-focused taxation. An updated ISF tax, weighted for carbon footprints, would lead to €17.6 billion in new revenues, according to Oxfam France.

France’s debt bind “has less to do with an increase in spending than with a drop in revenues,” France Insoumise MP Oziol told Jacobin. “We need to find additional sources of financing, whether that’s taxing windfall profits and financial transitions or reestablishing the ISF wealth tax.”

Oxfam’s widely covered September 17 report drills in the case for heightened taxation, specifically on large estates and inheritances. In the coming decades, it warns, a dramatic transfer of wealth will take place, as the largest fortunes are passed down from the wealthiest of the boomer generation to their successors. But thanks to the parlous state of the tax code, riddled with loopholes and write-downs, the 45 percent charge that is supposed to apply to inheritances above €1.8 million drops on average to 10 percent. All things considered, the report claims that upward of €160 billion that ought to enter state coffers in the coming transfer will be lost.

Meanwhile, most forces in parliament are opposed to any talk of new taxes. The Macronists, the right-wing Républicains (Barnier’s party), and Marine Le Pen’s Rassemblement National have all drawn red lines around increased tax liabilities. Though Barnier can force a 2025 budget through the National Assembly by invoking article 49.3 of the constitution, he would then require Le Pen’s tacit support to defeat the vote of no confidence that would almost certainly follow. Her party is waiting to consult the draft budget before taking a stance.

French opinion polls are often used to show a deep public wariness of increased taxation. These concerns are largely driven by the fear that new charges would fall on working- and middle-class people — the assumption being that they’re not designed in such a way as to targets the wealthiest households and larger corporations.

“When you ask people explicitly whether they are in favor of restoring the wealth tax, the majority will respond, ‘yes,’” Abdelké Yakoub told Jacobin. “If you ask them if they’re in favor of a tax on multinationals’ superprofits, they’ll say ‘yes’ too. But when you make grandiose speeches against raising taxes in general, or about how it’s already too hard in France, and about how taxes are like a shakedown and therefore shouldn’t be increased, they’ll agree too.” Yet these contradictions pale in comparison with the impasse in the National Assembly.