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Writer's pictureAlexander Cloke

French Government Teeters on the Edge: Political Strife and Budget Crisis Signal Potential Collapse

France may be on the edge of a profound political and economic shift following a dispute between Marine Le Pen, the leader of the hard right party National Front, and French Prime Minister Michel Barnier over the government’s draft 2025 budget.


This dispute comes after months of instability following the weakening of French President Emmanuel Macron’s coalition’s position in the National Assembly and the continuing gains of the French hard right in both European and national legislative elections.


Le Pen has warned of initiating a no-confidence vote to block the budget and force the government’s collapse if the National Front’s proposed amendments to prevent further tax increases are not accepted. Prime Minister Barnier can override lawmakers and pass the budget as the government sees fit. However, this is contingent on the no-confidence vote being defeated. Should it succeed, the budget, and perhaps the government, will be toppled.


The early National Assembly elections in June, called by President Macron, returned no clear majority. President Macron’s Ensemble coalition slipped into second place behind the hard left New Popular Front party after already lacking a majority, while the National Front and other hard-right parties made gains.


President Macron called the elections after European Union parliamentary elections resulted in the National Front securing 31.4% of French seats, over double that of President Macron’s party, leading him to call elections in the hope of assembling a majority to stem the growth of the hard right. Predictions of a National Front plurality or majority did not come to pass, but both the hard right and hard left have continued to gain in the polls.


Proposed in October, the plan aims to reduce France’s budget deficit from 6.1% to 5% of GDP by 2025 followed by a target to reach 2% of GDP in 2029, the ceiling set by the obligations of European Union member states that France is failing to meet.

 

This goal is set to be achieved by saving €60.6bn through a combination of higher taxes on individuals and corporations, alongside reductions in public sector spending, with an estimated two-thirds in spending cuts (€41.3bn) and one-third in tax rises (€19.4bn). However, it has been suggested that the final package could see a proportion closer to 80% in tax rises.


The primary taxation levers include a new minimum tax on high earners, at 20% for households with incomes over €250,000 for a single earner and €500,00 for joint earners. A new tax on high-revenue companies of either 10% or 20% will be levied for two years, and Électricité de France (EDF) will also be required to pay a special dividend directly to the government. Changes have also been made to tax residency rules. With France being amongst the highest taxed countries in the OECD, parliamentarians - including Le Pen- have raised concerns about the proposed austerity measures and have subsequently filed for amendments to the draft.


There are concerns that the current government might not endure until Christmas. Polls show that 53% of French people wish to see Prime Minister Barnier's government fall, largely due to the unpopularity of his proposed budget. Borrowing costs are up as bond markets react to the budget, which may lead to intervention from the European Central Bank to protect the market.


As Prime Minister Barnier approaches the third month of his tenure, political and economic challenges threaten to bring it to an abrupt end. Another political setback for President Macron may boost support for opposition parties even higher.

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