2 weeks Ago
(Bloomberg) -- France’s caretaker administration will present an emergency finance bill to parliament on Wednesday to avoid a shutdown after the country’s government and its 2025 budget bill fell in a no-confidence vote last week. The presentation is likely the final act of Prime Minister Michel Barnier’s short tenure, which was brought to an end when Marine Le Pen’s nationalist lawmakers joined forces with leftists to censure his government over its fiscal plans. The stopgap legislation has never been tested in its current form, raising uncertainty over its impact on France’s already stretched public finances and stuttering economy.
It applies the same taxes as in 2024 and provides for only the strict minimum of spending. France will only be able to present another full budget once a new government is appointed. President Emmanuel Macron intends to name a replacement for Barnier by Thursday evening, but the new prime minister would still need to pick a cabinet and it typically takes months to prepare a fully fledged finance bill and get it through parliament.
The fiscal equation is all the more challenging as there is no clear majority in the National Assembly. While opposition parties have said they will support the emergency legislation, they remain deeply divided on how to address France’s longer term budget difficulties. Barnier’s initial text foresaw a sharp reduction in the deficit to 5% of economic output in 2025 from 6.
1% this year. But opposition parties that voted him out of office balked at the €60 billion ($63 billion) of tax increases and spending cuts required to meet that objective. The so-called special law presented on Wednesday contains only a few articles that permit the state to rollover the same taxes levied in 2024 and continue to issue debt.
The law must be promulgated a few days before the end of the year to allow for decrees that would authorize the minimum spending deemed vital to keep the state functioning in January. While the stopgap budget bill doesn’t give an estimate for next year’s deficit, outgoing Budget Minister Laurent Saint-Martin said that absent a 2025 budget law and based on this emergency bill, the deficit would be at minimum superior to 2024’s level. Le Pen has played down the consequences of relying on emergency legislation and delaying the 2025 budget.
According to the far-right leader, it will be possible to adopt a full budget in the early months of 2025 to avoid de-facto tax increases for households. “There will be a new budget bill and we will all work on it together so that it is very likely voted before April,” Le Pen said on France 2 television Wednesday. Budget Minister Laurent Saint-Martin said Monday a full budget for 2025 could take weeks or months to finalize, exposing households to potentially higher tax bills and preventing the state from undertaking new spending pledges.
“French people must realize that censuring the government has a price,” he said on TF1 television. --With assistance from Ania Nussbaum. (Adds budget minister’s comments in the 8th paragraph) More stories like this are available on bloomberg.
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