France prepares pension and public sector savings to reduce deficit

The French government is preparing to present a budget for 2027 with measures of approximately €54 billion, which are intended to curb the growth of public spending and reduce the budget deficit to 5% of GDP. Savings will affect pensions, civil servants' salaries, sick leave, and other social expenses.

Details of the budget package will be presented by the government on October 1 together with the draft budget for the social security system. The French Ministry of Finance officially confirmed the presentation of both documents on Thursday.

According to Bloomberg, the government of Prime Minister Sébastien Lecornu plans to reduce the deficit from about 5.4% of GDP this year to 5% in 2027. Without additional measures, according to estimates by the French Ministry of Finance, it could exceed 6.5% of GDP.

One of the most sensitive areas will be pensions. The government is considering slower indexation of part of the benefits or a change in the tax incentive for pensioners. The total contribution of the pension system to budget savings should amount to less than €6 billion. Lecornu, however, stated that pensions will not be nominally reduced.

Another approximately €2 billion the government wants to save on the sick leave system. The Ministry of Labor was tasked with reducing expenses by approximately €2.5 billion, particularly through vocational training programs. A freeze of the index that determines civil servants' pay is also planned.

At the same time, the government plans to partially retain the extraordinary tax on large corporations, introduced earlier as a temporary measure. According to Le Monde, revenues from it may amount to about €5 billion instead of approximately €7.5 billion previously.

The tightening of budget savings comes amid a sharp increase in debt burden. As previously reported by Kurs Ukrainy, France plans to raise a record €340 billion on the market in 2027, while public debt has already reached about €3.6 trillion, or 119% of GDP. Its servicing costs next year may rise to €91 billion.

That is why the new budget will be an important test for the Lecornu government. To pass the document, it needs to push the package through parliament, where some opposition forces are already criticizing the proposed cuts and have indicated they may call a vote of no confidence.

Based on: Bloomberg, French Ministry of Finance, Le Monde