Dubai Telegraph - France unveils cost-cutting 2027 budget as borrowing costs rise

The 2027 budget bill -- to be examined in a divided parliament in coming weeks -- comes ahead of the April-May polls to replace centrist President Emmanuel Macron, with the far right eyeing its best chance so far at seizing power.

France has been struggling to contain its debt, with the budget deficit still well above the eurozone's three-percent ceiling.

In recent weeks, yields on French government bonds have risen to levels last seen during the global financial crisis as investors demand more money to hold its debt as the government has struggled to rein in deficit spending.

"I hear, here and there, the prophets of doom predicting the worst," said Finance Minister Roland Lescure regarding France's ability to service its debt.

"Let me reiterate it here: France's signature is solid."

According to the draft budget bill seen by AFP, France's government hopes to reduce the deficit to five percent of GDP with 43 billion euros in spending cuts and other measures.

France, the eurozone's second-largest economy, sank into political crisis in 2024 after Macron called a snap election that resulted in a hung parliament.

Since then, two successive prime ministers have been toppled over cost-cutting measures.

Prime Minister Sebastien Lecornu only managed to pass the 2026 budget through the lower chamber after agreeing to scrap Macron's flagship pensions overhaul.

Lecornu now faces the challenge of getting one approved for 2027 amid growing discontent over the rising cost of living as the US-Iran war sends global fuel prices soaring.

It is currently facing a wave of protests by students over poor conditions that has seen riot police deployed and more than 160 schools closed Thursday.

- Retirees asked to contribute -

Under the budget plan, revenue from value-added tax (VAT) would increase by more than seven billion euros compared to this year, while income tax receipts would rise by 5.7 billion euros.

But corporate tax revenue would fall by 1.8 billion euros, the bill showed, a reflection of Macron's pro-business agenda.

In total, net tax revenue in the state budget would increase by 18 billion euros compared to this year to reach 375 billion euros.

The government is also planning to "almost halve" its social security deficit in 2027, bringing it down to 12 to 13 billion euros, Labour Minister Jean-Pierre Farandou said.

It is hoping to save 5.1 billion euros in the health sector, including through a reduction in reimbursements.

Retirees will be asked to contribute to the tune of 5.5 billion euros, according to the plan.

The government is proposing that pensions above 1,260 euros a month no longer be fully indexed to inflation, and wants to lower tax allowances for pensioners.

The 2023 pensions reform to raise the retirement age from 62 to 64 sparked months of protests before Lecornu scrapped it last year to win the support of the Socialists, a swing group in parliament, for the 2026 budget.

- 'Out of step' -

"France's fiscal package would prevent the deficit from reaching 6.5 percent of GDP next year, but it would not stabilise public debt," analysts at ING said.

"With a difficult political process ahead, French bonds are likely to remain under pressure."

A ministry source has told reporters that the public debt would reach 121.7 percent in 2027 -- more than double the 60 percent limit EU member countries are required to aim for.

Those figures are unprecedented since 1978, according to France's statistics institute INSEE.

France's public deficit -- the annual shortfall of revenue to spending -- came in at 5.1 percent of GDP last year and, instead of reducing that level as originally planned, the government now forecasts it will hit 5.4 percent this year.

The Socialists were unimpressed.

"In this budget, there is no outstretched hand. There is absolutely nothing that would allow us to reach a compromise," said Socialist lawmaker Estelle Mercier.

The Greens said the budget was "completely out of step with the country's economic, social, and environmental situation".

"Instead of making very large inheritances contribute and taxing the windfall profits of oil companies, the government prefers to hit harder and harder the wallets of those who most need help."

burs-ah/as/rl

H.El-Din--DT