In response to budgetary challenges, the government plans to implement a special law by mid-December to ensure continued state functions without a finalized budget by January 1. This temporary measure will allow tax collection and the renewal of budget credits, facilitating salary payments for public servants. Additionally, concerns regarding income tax indexation to inflation could affect hundreds of thousands of households. The law will also permit the Social Security treasury to borrow in financial markets while maintaining essential state services.
A Temporary Solution: The Special Law Before the 2025 Finance Bill
In a bid to maintain budgetary stability, the government is set to introduce a special law before mid-December, as announced by Emmanuel Macron. This legislative measure, which is not commonly employed, aims to ensure that state functions can continue seamlessly in the absence of a finalized budget by January 1.
The Role of the Special Law
The proposed special law is expected to reach the Finance Committee of the National Assembly around December 12 or 13, as indicated by its president, Eric Coquerel (LFI). This legislation will likely encompass a minimal number of articles.
Characterized as a “patch,” the law’s primary goals are to authorize the collection of various taxes and to facilitate the temporary renewal of budget credits, as explained by Martin Collet, a tax law professor at the University of Paris Panthéon-Assas.
Specifically, the decrees resulting from this law will enable the payment of salaries to public servants, according to Bercy. However, the provisional nature of this text does not appear to impose strict time limitations unless a new budget is passed.
Implications for Income Tax
One of the government’s key arguments against potential censure involves the indexing of the income tax (IR) scale to inflation. Failing to adopt the finance bill would raise concerns over the constitutionality of this indexation within the special law.
If this indexation does not occur, approximately 380,000 new households could become subject to income tax, while an additional 17.6 million households currently paying taxes would face an increase. Mr. Coquerel has suggested submitting an amendment to index the IR scale to inflation as part of the special law.
However, the passing of a new finance bill in 2025 could allow for a retroactive adjustment of the scale, according to Mr. Collet. This raises the question: Are you one of the 380,000 households that may soon be liable for taxes?
Examining the Public Deficit
The carryover of the 2024 budget, which results in a freeze on state spending, could yield savings between 15 and 18 billion euros, according to Mathieu Plane, an economist at OFCE. This figure aligns closely with the initial financial objectives set for 2025, where the government aimed to reduce the public deficit to 5% of GDP.
While social spending, which is automatically adjusted for inflation, will likely rise, the government may have to forgo planned tax increases—estimated at over 20 billion euros—that were under consideration, including surcharges on high incomes and large corporate profits.
Without new tax measures aimed at increasing revenue or spending cuts to decrease expenditures, it is challenging to foresee a significant change in the deficit levels, as noted by Mr. Collet.
State Financial Commitments
In the interim, until a new budget is approved, ministries will operate with the credits allocated for 2024, as stated by Bercy. Guidance will be provided to these ministries regarding the utilization of these credits, along with a defined “doctrine” that will focus on maintaining essential state functions.
It remains to be seen how this doctrine will influence budgetary outcomes and whether the new government will exercise its regulatory authority to reduce certain credits, following a previous decree that cut 10 billion euros, which faced criticism.
Moreover, the special law will also enable Acoss, the Social Security treasury, to continue borrowing in financial markets, similar to the operations of the Agence France Trésor, which manages state debt and treasury operations.