French Prime Minister Michel Barnier would consider increasing or creating taxes with the aim of balancing public accounts and raising between 15,000 and 18,000 million additional euros, while delaying by two years, to 2029, the deficit reduction date until it 3% target prescribed by the European Union.
According to this information put forward by the newspaper ‘Le Parisien’, the French government would triple a tax intended for the highest incomes. mobilize some 3 billion euros and would increase the tax burden on businesses, which would generate revenues of 8 billion euros. In addition, he plans to raise the price of electricity, increase the tax obligations of energy companies and tax share buybacks. These measures would bring a total of 6 billion euros.
The newspaper Le Monde already indicated this Monday that Barnier would temporarily increase the corporate tax on large companies by 8.5 points with a turnover of more than 1,000 million euros. In addition, it also communicated the possible rate on repurchase operations. Among the French companies covered by the Eurostoxx 50 index are Vinci, BNP Paribas, Société Générale, TotalEnergies, Kering and Airbus. Among Spanish companies, ACS is expected to pay more taxes through Abertis, given that it operates motorways in France and has a 50% stake with Italy’s Mundys.
Barnier’s new executive must tackle the French public deficit which, according to documents recently consulted by AFP, could close this year 5.6% and 6.2% the next one. Likewise, he will have to do it without a legislative majority and quickly, since he will have to present a draft budget in the coming days to send it to Parliament no later than mid-October. The previous government predicted a 3% gap for 2027, but lower-than-expected revenues and higher spending threw the forecasts out of balance.
An uncontrolled deficit
The new Barnier government warned last week that the budget deficit risked exceeding 6% of economic output this year. This forecast was raised several times compared to the 4.4% initially forecast by the previous administration, as tax revenues were disappointing and local authorities increased spending beyond expectations.
This decline further disrupted investors, who had already abandoned French assets when Macron dissolved Parliament in early June. The risk premium of the country’s 10-year bonds compared to their German equivalents reached around 80 basis points (more or less the same level as Spain) compared to less than 50 in May.
A crucial element to watch is how quickly Barnier attempts to reduce the deficit. The previous government had planned reduce the gap within the limit of 3%by 2027, but attempting it with the current starting point would involve severe austerity in an economy already struggling with weak domestic demand and weak investment. This is why they will decide to extend the deadline.
In addition to preserving its credibility with bondholders, the Barnier government is also under pressure to agree on a roadmap for public finances with the European Commission, the executive body of the EU. The new rules could allow for a more flexible timetable, but to benefit from leniency, France must also commit to economic reforms as part of an overall package.
