Against a background of significant political instability, and without a parliamentary majority, the government announced a budget that has made the recovery of public accounts an absolute priority.
The plan aims to reduce public debt by €30 billion over the next year. This will be achieved through a combination of €17 billion in spending cuts and €14 billion in new revenue, with the goal of lowering the public deficit to 4.7% of GDP (5.4% anticipated in 2025).
Below is a summary of the key proposals likely to be of most interest to readers.
Income Tax and Social Charges
Income tax and social charge bands will be frozen, with no adjustment for inflation as has traditionally occurred. Tax rates remain unchanged.
The tax discount (décote) currently available to couples earning just above twice the minimum wage (SMIC) will be aligned with that applied to single individuals.
Pensions
The 10% allowance against tax is to be abolished, to be replaced by a fixed allowance of €2,000 for a single person and €4,000 for a couple. See our previous article Income Tax 2026.
Social Security Benefits
All social security benefits will remain at their current levels, with no increases planned.
High Incomes
The ‘temporary’ surtax on high incomes (over €250,000 for individuals and €500,000 for households) will be extended for another year. The measure imposes a minimum effective tax rate of 20%, impacting approximately 16,000 households.
A new feature is the proposed taxation of the financial assets of wealth management family holding companies, which are legal structures often used by the wealthiest households to manage and transfer their wealth.
Small Parcels
A new tax of €2 will be introduced on small parcel deliveries.
Health Charges
There is to be a doubling of the ceiling on patient contributions levels (from €50 to €100 per year). The charges relate to the deductibles for prescriptions, medical consultations and transport, which may be otherwise reimbursed by a complementary health policy. These deductibles are now to be also extended to dental care.
Complementary Health Insurers
Several cost-shifting measures will transfer more financial responsibility to complementary health insurers, likely to result in higher premiums.
Long-Term Illness
Certain medical illnesses which currently obtain 100% reimbursement on health charges will be phased out.
School Costs
The tax relief granted for school costs in lower and upper secondary schools is to be abolished.
Vehicle Pollution Tax
The threshold at which a pollution tax applies on the registration of a new vehicle will be reduced and the tax itself increased.
VAT
The VAT exemption for small companies and landlords will be reduced to €37,500 for all types of businesses, except to the construction sector where it will be capped at €25,000. See our earlier article VAT Limits for Small Business Owners.
Business Start-Ups
The relief on social security contributions for business start-ups is to be restricted
Other Measures
They include a continuation of the surcharge on the profits of 400 of the largest companies, albeit at a reduced rate, together with a reduction in the business rates on large companies.
Notable omissions from the budget include the reform of the pensions system, to increase the age of retirement from 62 to 64, as well as the previously proposed increase in the flat-tax on investment income, together with any introduction of a widely discussed and advocated new form of wealth tax, albeit the government is proposing a new tax on wealth management structures. An earlier proposal to also reduce the tax advantage on domestic services has also been omitted.
The Prime Minister, Sébastien Lecornu, has stated that he will not invoke constitutional powers to pass the budget without a vote in Parliament. He no doubt did so for practical reasons, as he would undoubtedly face a motion of no-confidence, which he would probably lose. Given the government's lack of majority, it is therefore expected that the draft will undergo revisions during the legislative process.
The public accounts watchdog, the Haut Conseil des finances publiques (HCFP), described the economic assumptions of the draft budget as "optimistic", and the targets in relation to expenditure "very ambitious".
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