If you thought a "£22bn black hole" was bad, consider France:

French PM Michel Barnier unveils shock therapy in 2025 budget 

Minority government bets on mix of spending cuts alongside tax rises on companies and the wealthy 

 Prime Minister Michel Barnier said: ‘We cannot sacrifice the future of our children or continue to write bad cheques that will fall on them’  Leila Abboud in Paris 

The French government has proposed a budget for next year with some €60bn worth of spending cuts and tax increases on companies and the wealthy, as it seeks to narrow its widening deficit. Prime Minister Michel Barnier has cast tackling France’s “colossal” public debt as his biggest priority, despite the political risk such measures entail for his fragile minority government. 

 “We cannot sacrifice the future of our children or continue to write bad cheques that will fall on them,” Barnier said on Thursday. “The attractiveness [of France] and credibility of the French signature must be preserved.” 

 In the proposed budget, some 440 large corporations with revenues above €1bn would be hit by an “exceptional” tax lasting two years with the aim of raising a total of €12bn. Share buybacks would also be taxed. The state-owned electricity utility EDF will pay a special dividend to government coffers — together these changes, and others affecting business, would raise €13.6bn. 

 If passed, the moves would break with the economic policies espoused by Macron since 2017 that include lowering taxes and curbing strict labour protections in an effort to boost growth and competitiveness. 

 Passing the budget in the fragmented National Assembly will be Barnier’s first real test since Emmanuel Macron named him premier in August. His appointment came after shock snap elections which forced the president’s centrist camp into an awkward power-sharing government with Barnier’s conservative Les Républicains. 

 Few lawmakers believe the budget can be adopted without Barnier using a constitutional clause that allows him to override parliament, but doing so could open him up to the risk of a no-confidence vote.

 At stake is Barnier’s ability to both calm investors’ jitters about lending to France and withstand pressure from Brussels, which has admonished Paris for its excessive deficit. French borrowing costs now exceed not only those of Germany, but also Spain’s. 

 The government claims two-thirds of the €60bn effort in 2025 will come from spending cuts, such as on medical costs, unemployment, and reducing the number of public servants. The rest will come from tax increases. 

 But an independent government advisory body, using a different calculation method, recently estimated taxes will account for 70 per cent of the effort. The divergence matters because Macron’s centrists staunchly opposes tax increases, while Barnier’s own party also wants more spending cuts. 

 Barnier has said the budget draft is a starting point for lawmakers, but warned them not to derail the goal to reach a deficit to 3 per cent of national output by 2029. 

 Another hit to companies will come from delaying a planned cut in production taxes, which groups pay on their activities regardless of whether they are profitable. Cutting these was a hallmark of Macron’s supply-side strategy. 

 Airlines and private jets face a new levy on flights to generate €1bn next year, while container shipping companies, including Marseille-based CMA-CGM, will be slapped with a separate levy that would raise 800mn in the next two years. 

 Businesses will also be affected by higher labour costs caused by scrapping tax breaks on low-income workers and phasing out apprenticeship subsidies. Although Barnier has argued working people will be insulated, households will be affected by higher taxes on electricity bills. 

Individuals are also likely to face higher healthcare costs if the government scales back reimbursements of doctors’ visits and medicines as planned. In another shift from Macron’s approach, France’s wealthiest are being asked to contribute €2bn in a new tax on those who earn about €500,000 annually, who are estimated to represent 65,000 households. 

 The deficit will stand over 6 per cent of GDP by year end. The government aims to trim it to 5 per cent by the end of 2025, although public spending will still increase next year because all the spending cuts and taxation will only slow the pace of increase. 

 France has repeatedly overshot its deficit targets since last year, prompting concern that the government has lost control over spending and also cannot accurately predict tax inflows. Its debt pile represented 110 per cent of GDP as of July, the third-worst in the EU behind Greece and Italy. Successive French governments have not presented balanced budgets for decades. 

The public has a renowned appetite for costly welfare programmes and supports a high level of income redistribution. One of Barnier’s particularly controversial proposals asks retirees — long protected by politicians as a key voting bloc — to delay the annual inflation-adjusted increase to their state pensions by six months. The move would save about €3.6bn. Several parties have already railed against it, including the far-right Rassemblement National. Pushing the issue is risky for Barnier because Marine Le Pen’s RN is the key swing voting bloc needed for a no-confidence vote to pass.