A few months ago, I did an article here, comparing the then prime minister, Michel Barnier’s, proposed French budget to that of the UK. Since then, of course, France has undergone significant political and economic shifts. After Michel Barnier’s initial budget proposal in October failed to pass, he was replaced, with François Bayrou becoming Prime Minister. In February, Bayrou successfully pushed through his own budget, officially known as La loi de finances pour 2025. So let us now take this opportunity to compare the two.
First and foremost, we can conclude that Mr Bayrou’s budget is much less ambitious, with the budget deficit still expected to be 5.4% of GDP in 2025, although this is probably because he had little choice. After all, unsurprisingly, there is very little appetite for either tax rises or spending cuts! Indeed, the only thing that everyone can agree on is that the richest should pay, and so that is more or less the only thing that was passed, albeit in a watered-down version. Let us dig deeper, comparing what I said then to what has actually been voted in by the Bayrou government.
Big Business Tax: Still Targeted, But Only for One Year
THEN – “Mr Barnier said his government would cut spending, by some 40 billion euros, as well as raise an additional €20 billion of revenues via tax hikes. Most of the income will come from companies, and more specifically from those with a turnover greater than 1 billion euros. The latter will have to pay an exceptional contribution on profits that should bring in an extra 8 billion euros in 2025.”
ACTUAL – The tax on companies with a turnover greater than 1 billion euros is retained, but for one year (2025) only. In terms of spending cuts, the objective has been reduced from 40 to 30 billion euros; however, with very little specifics given as to where the savings are to come from, I, for one, remain skeptical.
High-Income Households Face a Temporary Tax Hike
THEN – “With regards to individuals, only the wealthiest taxpayers should be concerned, those whose reference income exceeds 250,000 euros for a single person, or 500,000 euros for a couple. These tax households will contribute 2 billion euros per year, for three years.“
ACTUAL – This too has been retained, with these households to pay a minimum rate of income tax of 20%, with the usual social charges on top of that, meaning a minimum rate of 37.2% tax. Again, this will only apply for 2025 income, whereas Michael Barnier had proposed this ‘exceptional’ tax to last for three years.
Spending Cuts Scaled Back: What Was Promised vs. What Happened
THEN – Antoine Armand, the economy minister, has committed himself to the following statement: “For every euro of additional revenue, we will save two euros of public spending”. However, when you look at the proposals for spending cuts, I say good luck to him! The two principal propositions for saving money both look controversial and ripe for contestation. The first being to cut 4,000 jobs in schools and the second being to freeze pensions for six months. (the latter may not seem so shocking, but remember, we are in France!).
ACTUAL – I do not like to brag, but simply put, I was right! There will be a moderation of spending cuts. Notably, the controversial six-month freeze on pensions was scrapped, and the 4,000 planned job reductions in education were abandoned.
The Microentrepreneur VAT Threshold Controversy
Sometimes, however, you do wonder what planet the politicians live on! Within the budget there was also a measure to lower the threshold for self-employed microentrepreneurs (very small businesses/sole traders), to pay VAT, from €37,500 to €25,000. This would have affected hundreds of thousands of sole traders, such as hairdressers, delivery drivers, odd job people, dog walkers, fitness instructors… earning barely the minimum wage. Asking them to charge their clients 20% more would surely have sent a significant percentage of them to the wall.
To add to the lunacy, the measure was only expected to yield 400 million euros; a mere drop in the ocean in government receipts, let alone spending. Fortunately, within 48 hours of the vote, this measure was suspended. I dearly hope that by the time you read this article, it will have definitely been abandoned!
Evidently, France’s smallest entrepreneurs (which may include some of you) cannot operate with a higher tax burden. France’s largest companies have, therefore, been asked to contribute further. However, even here, one has to be careful; with Donald Trump, for example, proposing corporate taxes of just 15% for those producing in the US, it is important to get the right balance.
So, Will Bayrou’s Budget Actually Change Anything?
To answer our title question, frankly, the 2025 budget barely moves the dial. For the 2026 budget, let us hope that the French government votes to cut expenses, or at the very least not to raise spending budgets in line with inflation, rather than raise taxes!
We can all dream!