Paris has recently been enveloped in persistent autumn rains, and walking on the streets, one can already feel the chill of the autumn breeze. The greenery is gradually fading from the trees lining the Champs-Élysées, turning into shades of goose yellow or crimson red. The street where I live has already started preparing to hang this year's Christmas lights. Everything is reminding people—the footsteps of winter are near, and the end of the year is just around the corner.
However, the French government's budget for next year is still up in the air. After last week's review by the National Assembly's Finance Committee, the Barnier government's budget proposal for 2025 officially entered the plenary discussion stage of the National Assembly on the evening of October 20th, unveiling the much-anticipated budget. The primary goal of this budget is austerity. Barnier, upon assuming the role of Prime Minister, openly stated that France's financial crisis had reached a critical point.
"People always talk about the Sword of Damocles hanging over the government's head... But the real Sword of Damocles is our huge fiscal deficit: 322.8 billion euros. If we do not become vigilant immediately, it will push our country to the brink of a cliff," Barnier said in his first national address after taking office on October 1st.
To pull France back from the brink, Barnier's prescription is as old as time—increasing revenue and cutting expenses.
To increase revenue, the French government plans to raise an additional 20 billion euros. To cut expenses, the government aims to reduce spending by at least 40 billion euros. Both measures, essentially taking money from the people, are naturally unpopular. This will be the greatest, and perhaps the only, challenge facing the Barnier government.
This budget proposal is essentially the ultimate purpose for the establishment of the Barnier government. If it passes, it would be considered a complete success; if it fails, the Barnier government might have to step down immediately and everyone would go their separate ways.
Increasing Revenue: Where is the money?
When it comes to increasing revenue, the simplest method is naturally to raise taxes. This is also the method chosen by the Barnier government. Specifically, it involves increasing personal income tax, especially for high-income earners. According to projections by the French Ministry of Finance, this round of tax increases will particularly target high-income individuals, especially those who may have previously used various methods to avoid taxes. The benchmark is an annual personal income of more than 250,000 euros or a family income of more than 500,000 euros.
This figure is definitely considered ultra-high income in France. Unlike the United States, in fact, the income level of residents in France is not particularly high. According to data from the French National Institute of Statistics and Economic Studies, the average pre-tax annual income of the French in 2024 is less than 40,000 euros. Therefore, the Barnier government believes that this tax increase will only affect a very small portion of people—specifically, 0.3% of the more than twenty million income tax accounts in France, which is about sixty-five thousand tax units (individuals or families).
Because the number of people affected is small, relying solely on tax increases will not be enough to meet the 20 billion euros in revenue growth. The French Ministry of Finance estimates that tax increases can only bring in an additional 2 billion euros, just 10% of the target.
So where is the remaining 90%?
The French government is in full mode to find money, fully utilizing its initiative and imagination. Since the wealthy are to contribute to the country, the companies they own cannot escape either. The French Ministry of Finance has selected 400 domestic companies with a turnover of more than 1 billion euros to impose a special tax for two years, expecting to collect 8 billion euros in 2025 and another 4 billion euros in 2026, totaling 12 billion euros over two years.
In addition, the French government has chosen a target that we Chinese might find hard to accept—online casinos. What we consider a scourge, the cash-strapped French government sees as a potential gold mine.
Online casinos are currently illegal in France. The only legal gambling activities within France are government-authorized betting websites and lotteries, plus a few government-authorized offline casinos. However, France is actually an anomaly within the European Union in this respect. Most EU countries adopt a model of allowing and regulating online casinos. The only countries that completely prohibit them are France and Cyprus.
This puts the French government in an awkward position. Local gamblers can go to online casinos established in other European countries to gamble, and then the French government cannot tax this money. According to estimates by the French Gambling Association, the gray market revenue in this area within France is as high as 1.5 billion euros. If previously the French government might not have cared much, now that public finances are facing collapse, they naturally will not miss this opportunity.
Ironically, the loudest opposition to the legalization of online casinos comes from France's offline casinos.
The head of the offline casino union recently spoke on several French media platforms, stating that legalizing online casinos would cause a disastrous impact on the ecosystem of offline casinos. They predict that the industry will eliminate 15,000 jobs.
So it goes with interests; if you touch my interests, you become my enemy. The complexity of a country's finances, with its many entangled interests, is naturally not something ordinary people can easily imagine.
Including tax increases, how these policies will be implemented remains to be seen. However, the challenges for the French government are far from over.
Cost Cutting: Don't touch my money
Merely increasing revenue has already encountered the hurdle of touching vested interests. When it comes to cost cutting, openly reducing government spending naturally faces even greater resistance.
Since the budget proposal entered the Finance Committee's subgroup discussion last week, French TV stations seem to have become venues for airing grievances. From local government representatives to various union representatives to industry representatives, everyone is vying to express their understanding of the government's need to save expenses and agreeing on the necessity of austerity, but insisting that their own industry should not make too great a sacrifice.
The central government in Paris requires all provinces and local autonomous bodies to follow the central example and cut expenses, totaling a reduction of 5 billion euros. Once this was announced, local governments naturally came out to complain. The chairman of the provincial council of Upper Marne near Paris stated in an interview with BFM TV on Monday that if this were really implemented, Upper Marne would have to sell the provincial government building and the police station building.
The government had also planned to cancel the electricity price subsidies provided since the outbreak of the Russia-Ukraine conflict, leading to an expected 17% increase in electricity prices, naturally bringing a wave of dissatisfaction. In the end, this measure was unanimously opposed by members of various factions within the Finance Committee and was ultimately deleted.
In addition, the issue of pensions is also a major hurdle that the Barnier government must face in its cost-cutting measures. In the Barnier government's draft, the issuance of pensions will change from an annual review to a biannual review, naturally allowing the government to adjust pensions more quickly based on inflation expectations. However, this increases the uncertainty for retirees, which is unacceptable to both the left and the far right.
The far right has repeatedly emphasized that they will not rule out launching a motion of no confidence against the Barnier government over certain budget provisions. And if the left and the far right reach a consensus on some social security issues, the downfall of the Barnier government becomes inevitable. Therefore, the discussion on reducing pensions in the coming week will be the main event.
In short, the coming week in the parliament will definitely be a lively scene of chaos. Financial reform is never easy. Barnier was chosen by Macron for his experience and ability. Whether he can succeed, and whether France can pass next year's budget before the new year arrives, we shall see.
