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A very fragile draft budget

The past few days have once again been intense and full of twists in French politics. Prime Minister Sébastien Lecornu, who had resigned last week, has ultimately returned for a second attempt. He is now the Prime Minister of a new government.

This new government submitted a draft budget for 2026 this Tuesday, and the Prime Minister delivered his general policy statement to Parliament on Tuesday afternoon. Here are some key points:

• To secure his position and avoid a censure motion from the Socialist Party, Lecornu agreed to suspend the pension reform entirely, postponing the issue until after the 2027 presidential elections. The retirement age will remain at 62 years and 9 months. This measure will cost the pension system €400 million in 2026 and €1.8 billion in 2027. Factoring in reduced labour market participation, the total cost to public finances rises to €3 billion, benefiting 3.5 million French citizens.
• Lecornu announced that this suspension must be offset by additional savings and cannot come at the cost of an increased deficit. However, how this will be achieved remains very unclear.
• The goal is to reduce the deficit to 4.7% of GDP from 5.4% in 2025 and to stay below 3% by 2029. The likelihood of achieving this seems quite low at this stage. The High Council of Public Finances deemed the project fragile and even “very hypothetical” on Tuesday. Despite the plan, debt will continue to rise, reaching 117.9% of GDP in 2026, an increase of 2 percentage points.
• The budget foresees a contained evolution of public spending, aiming to reduce the public spending rate from 56.8% of GDP in 2025 to 56.4% in 2026. Savings on expenditure are estimated at around €17 billion. The idea is to avoid indexing many benefits, including pensions, and to cut costs in government operations.
• The mandatory levy rate would rise to 43.9% of GDP, from 43.6% in 2025. To achieve this, €14 billion in new revenue is budgeted, mainly targeting the wealthiest households, but also through the extension of the exceptional corporate tax surcharge and a freeze on income tax brackets.

What’s next?

Parliamentarians now have 70 days to debate, amend, and vote on the budget. At this stage, a parliamentary agreement seems difficult, as it requires both chambers to agree. Therefore, both the right (LR) and the left (PS) must vote for the budget. Last year, the parliamentary debate led to a distorted text that no one wanted to vote for. If Parliament does not agree on the budget, several options exist:

• Invoke Article 49.3 of the Constitution, which allows laws to be passed by force. This is how all previous budgets were passed, so the promise to avoid it will be hard to keep. Nevertheless, Lecornu has promised not to use this option, and doing so would likely lead to censure.
• Enforce the budget by ordinance. If Parliament has not ruled within 70 days after the budget texts are submitted, the Constitution allows its provisions to be implemented by ordinance. This third option is credible, though politically explosive.
• In the absence of a budget, Parliament could vote a special law at the end of the year, as it did last year, extending the 2025 budget into 2026 while awaiting an agreement.

Following the latest announcements, the Socialist Party has indicated it will not file a censure motion, reducing the immediate risk of government collapse. The RN (far right) and LFI (far left) have already submitted censure motions, which will be debated Thursday in the National Assembly. Even if these parties join forces, possibly with the Greens, the motions are unlikely to pass unless LR unexpectedly supports them.

Should a new censure motion succeed – a less likely scenario – President Macron has announced he will dissolve Parliament and call new elections, with no further attempts to appoint a new Prime Minister.

Less political instability but more deteriorated fiscal situation

Overall, French political instability has been reduced by recent events but has not disappeared. The government is still very much in the minority and will find it very difficult to pass any legislation. Its survival will be called into question on a regular basis.

Less political instability does not mean the budget will be passed in its current form. Either it will be amended during parliamentary debates, or it will pass through the back door at the cost of renewed political instability. France’s budgetary problems, which are largely structural, are far from resolved, and the announced path to fiscal recovery is now even less credible. With the suspension of pension reform, the budgetary efforts required each year to return to a deficit of 3% in 2029 are even greater, and political consensus on how to achieve this remains elusive. Unfortunately for Europe, this is not the end of the story.

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