France: Successful policy statement for M. Barnier with main challenges ahead

On 1st October, the French Prime Minister M. Barnier did his policy statement in the National Assembly. The far right “ Rassemblement National ” indicated it won’t vote a no confidence vote against the government, but draw some “red lines” , notably on tax increases, which should not hit the working and middle classes , and on immigration. We think the government will survive the motion of censure from the leftist coalition that will be voted probably next week as the far right won’t join, but t he risk of new snap elections next summer remains high as the government has painful choices in sight with only a relative majority. Key takeaways: Mr. Barnier confirmed that the French public deficit will exceed 6% this year (6.2% according to French press). The government aims to reduce the public deficit to 5% in 2025 and to 3% in 2029 (ie two more years than normally set in the European rules). For 2025, he announced 2/3 of public deficit reduction by spending cuts and 1/3 by tax increases. However, Mr Barnier was very vague regarding possible spending cut . W e doubt the fight against tax and social security fraud will bring much money back to the government as the pooling of certain State operators and agencies with similar objectives (Business France and Atout France, France Stratégie and the High Commission for the Plan). The reduction in social security payments, a very unpopular measure, could generate at least €1bn of savings, but would lead to an increase in private health insurance price . Regarding tax increases, Mr Barnier mention an exceptional contribution to the wealthiest ( which we estimate could bring in a maximum of €15bn ) and hint on an exceptional corporate income tax for big companies , with no details at this stage . Mr Barnier opened the door to some technical adjustments of Macron’s pension reform , which could concern women or long careers . The draft budget law is planned to be sent to the Parliament the week o f 9 th October and we will have to wait this sending to have more details on different measures. However, there is a clear risk of having measures that lack credibility, especially on the spending side.