France’s Fiscal Objective: Achieving a Less Than 3% GDP Deficit by 2029

The French Minister of Economy, Roland Lescure, considers that the surprise reduction of the French debt rating by S&P on Friday is a call to behave with “lucidity” and “seriousness”, and assures that his “absolute” objective is a trajectory for a deficit of less than 3% of GDP in 2029.

In an interview with the economic newspaper Les Echos released this Sunday, the eve of the start of the parliamentary debate on the budgets for 2026, Lescure insists that the guideline of the Prime Minister, Sébastien Lecornu, is that “whatever happens” the deficit next year must be “strictly less” than 5% of the gross domestic product (GDP).

The budget project presented by the Executive last Tuesday foresees a deficit of 4.7%, but since it does not have a parliamentary majority and has refused to adopt it by decree, since it was one of the demands of the socialists so as not to bring it down with a motion of censure, the final figure will depend on the debate in the coming weeks.

That is why the head of Economy and Finance points out that “it is now the collective responsibility of the Government and Parliament to achieve the adoption before the end of the year of a budget project that respects that trajectory” to reduce a deficit of 3% in 2029.

“I will be extremely cautious with everything that takes us away from this objective,” he stressed before indicating that he listens to what his European partners tell him and that “my absolute north, my north star is to go below 3% in 2029. We have to maintain a credible trajectory to achieve it.”

The socialists, who will continue to be crucial for Lecornu’s Government to survive, are against many of the adjustments contained in the draft budget and are betting on cutting the deficit by increasing taxes on the richest, in particular with the so-called ‘Zucman tax’ that would tax the assets of those who have more than 100 million euros at 2%.

On this issue, Lescure is careful to point out that his project already includes nearly 14 billion euros of new taxes, of which 6.5 billion euros for “the families with the highest tax contribution.”

And he charges against the ‘Zucman tax’ because it affects professional assets: “I do not in any case want French companies to be forced to sell their capital abroad to pay taxes.”

Lecornu had to make another concession to the socialists to maintain his Government, announcing the suspension of the pension reform that is progressively delaying the minimum retirement age from 62 to 64 years.

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What are the Maastricht Criteria, and why is France‘s current deficit level a concern in relation to these criteria?

Understanding the Maastricht Criteria & France’s Current position

France, like other members of the Eurozone, operates under the constraints of the Maastricht Criteria, established in 1992. A core component of these criteria is maintaining a government deficit of less than 3% of Gross Domestic Product (GDP) and a government debt of less than 60% of GDP. Currently, France is considerably above the 3% deficit threshold. As of late 2024, the deficit stood at approximately 5.5% of GDP, prompting the government to outline a plan to achieve compliance by 2029. This commitment is crucial for maintaining economic stability within the Eurozone and bolstering investor confidence in the French economy. The public deficit is a key indicator of a nation’s financial health.

The 2029 Plan: Key strategies for Deficit Reduction

The French government’s strategy to reduce the deficit to below 3% by 2029 relies on a multi-pronged approach. This isn’t simply about austerity; it’s a complex balancing act of spending control, revenue generation, and economic growth stimulation.

Here’s a breakdown of the key elements:

* spending Cuts: Targeted reductions in government expenditure are central to the plan. These cuts are focused on areas deemed less critical for economic growth and social welfare. Specific areas include:

* Reducing administrative costs within government departments.

* Streamlining public services to improve efficiency.

* Re-evaluating and potentially scaling back certain infrastructure projects.

* Tax Reforms: While large-scale tax increases are politically sensitive, the government is exploring targeted tax adjustments to boost revenue. this includes:

* Combating tax evasion and fraud.

* Reviewing tax exemptions and loopholes.

* Potentially increasing taxes on certain luxury goods or environmentally damaging activities.

* Economic Growth Initiatives: The plan recognizes that sustainable deficit reduction requires robust economic growth. Key initiatives include:

* Investing in innovation and research & growth (R&D).

* Promoting entrepreneurship and small business development.

* Implementing structural reforms to improve the competitiveness of the French economy.

* Pension Reform: The controversial pension reforms enacted in 2023, raising the retirement age, are projected to contribute significantly to long-term savings and deficit reduction. This remains a contentious issue, but is considered a vital component of the overall strategy.

Impact of EU Fiscal Rules & the Stability and Growth Pact

The Stability and Growth Pact (SGP), the set of rules designed to coordinate fiscal policies within the Eurozone, plays a crucial role. Recent revisions to the SGP, agreed upon in 2024, offer member states more adaptability in setting their own deficit reduction paths, but still require a commitment to fiscal sustainability.France’s 2029 target aligns with the broader objectives of the SGP,but the country will need to demonstrate credible progress each year to avoid potential sanctions. The European Commission will closely monitor France’s fiscal performance.

Challenges and Risks to Achieving the 2029 Target

Several challenges could derail France’s efforts to meet its 2029 deficit target:

* Geopolitical Instability: Global events, such as the war in Ukraine and rising energy prices, can significantly impact the French economy and necessitate increased government spending.

* Economic Slowdown: A recession or prolonged period of slow economic growth would make it more tough to generate the revenue needed to reduce the deficit.

* Social Unrest: Continued social unrest, triggered by issues like pension reforms or cost of living increases, could disrupt economic activity and undermine the government’s fiscal plans.

* Implementation Delays: Delays in implementing planned spending cuts or tax reforms could jeopardize the timeline for deficit reduction.

* Inflation: Persistent high inflation can increase government spending on social programs and public sector wages, making deficit reduction more challenging.

Sector-Specific Impacts of Fiscal Consolidation

The planned fiscal consolidation measures will have varying impacts across different sectors of the French economy.

* Public Sector: The public sector will likely face significant pressure to reduce costs and improve efficiency. This could lead to job losses or wage freezes in some areas.

* Healthcare: Healthcare spending is a major component of the French budget. Efforts to control healthcare costs could involve measures such as negotiating lower drug prices or improving the efficiency of hospital operations.

* Education: Education spending is also under scrutiny. Potential measures include streamlining administrative processes and optimizing resource allocation.

* Infrastructure: Some planned infrastructure projects may be delayed or cancelled as part of the deficit reduction effort.