Five questions for the next French finance minister

PARIS (Reuters) – After being appointed finance minister, French Prime Minister Michel Barnier is now forced to waste no time in presenting a budget for 2025 that could decide whether the new government succeeds or fails.

Whoever Barnier chooses will have to find a way to plug the huge hole in public finances, present a draft budget by October 1 and then get it through a deeply divided parliament.

Any missteps could anger opposition parties, which, if they join forces and pass a no-confidence motion, could bring down the government.

Here are five questions the new finance minister will have to answer quickly:

RAISE TAXES OR CUT SPENDING?

Lower-than-expected tax revenues and higher local government spending mean that France’s public sector budget deficit could reach 6.2% of economic output next year if no action is taken to reduce it.

The new government will therefore have to decide how to balance tax increases and spending cuts so as not to anger parties on either the left or the far right.

As a conservative, Barnier is likely to favour spending cuts, although relying solely on belt-tightening could threaten growth in the eurozone’s second-largest economy.

Barnier said France needed more “fiscal justice”, suggesting targeted tax increases were possible, even if this was taboo under President Macron’s previous government.

WHERE COULD SPENDING FALL?

Outgoing Finance Minister Bruno Le Maire has warned that France will need 30 billion euros in savings this year and next to keep on track with its deficit-reduction targets, although that looks increasingly unlikely.

A recent audit of Ministry of Finance spending revealed potential savings of more than €12 billion on grants and tax breaks for businesses, medical equipment, long-term sickness care, public sector absenteeism, and training programmes and internships.

More savings could be made by taking steps such as not increasing civil servants’ pensions and salaries in line with inflation, although this would outrage opposition parties.

WHAT TAXES CAN BE RAISED?

If tax increases are included in the 2025 budget, Barnier’s finance minister may take up Le Maire’s proposal to increase special levies on energy companies and buy back company shares.

Higher tax revenues could also be achieved by reducing tax breaks for short-term rentals on platforms such as AirBnB, as well as corporate spending on research and development.

SHOULD FRANCE MAINTAIN ITS DEFICIT REDUCTION TARGETS?

Ultimately, the combination of spending cuts and tax increases may not satisfy opposition parties as the budget moves through parliament.

This would force the Finance Minister to backtrack on the outgoing government’s sacrosanct goal of reducing the budget deficit by 2027 in line with the EU’s 3% of GDP ceiling.

If the European Commission and France’s EU partners had allowed more time for this correction, Paris could have made smaller spending cuts and tax increases, putting less strain on the economy.

HOW SHOULD FRANCE TREAT ITS EU PARTNERS?

If France is given more time to reduce the deficit, the new finance minister will have to negotiate new targets with Brussels and gain the support of other eurozone countries, especially Berlin.

However, France’s eurozone partners may be reluctant to give Paris more time if the Barnier government does not commit to growth-friendly economic reforms.

Even that may not be enough, given France’s poor record on complying with EU budget deficit rules and the risk that opposition parties could topple Barnier’s government.

(Reporting by Leigh Thomas; Editing by Christina Fincher)