France's Barnier resorts to targeted tax hikes to plug budget deficit

Prime Minister Michel Barnier announced steep spending cuts and tax hikes for France's biggest companies and wealthiest individuals on Tuesday, saying there was no other way to narrow a gaping budget deficit.

Barnier, appointed last month, faces the challenging task of plugging a huge hole in public finances at a time when the fragmentation of parliament and infighting in his minority government will make it hard to push through reforms.

France's credibility with its European Union partners and in financial markets is at stake after its borrowing costs surged.

"The real sword of Damocles hanging over us is our colossal financial debt," Barnier told lawmakers as he set out his government's policy plans, ignoring heckles from the hard-left France Unbowed.

France's deficit was making it weaker in Europe, he added.

He said tax increases taxes would be targeted and temporary, without giving further details. The dire state of public finances meant there was "no other choice," he said.

According to Le Parisien newspaper, Barnier was considering tax hikes of 15 to 18 billion euros ($17-20 billion).

They reportedly included an additional 8 billion euros through taxes on corporations, and the imposition of an additional 3 billion euro levy on energy companies and share buybacks.

The plans also include raising income taxes for top earners to bring in some 3 billion euros, and increasing electricity taxes for another 3 billion euros, Le Parisien said, without citing sources.

Barnier's office did not reply to a request for comment on the figures.

Budget minister Laurent Saint-Martin said last week that the hole in public finances was worse than expected, with the budget deficit at risk of topping 6% of economic output, far above the 5.1% estimated by the previous government in the spring.

Barnier said he would haul the deficit back down to 5% of economic output by the end of 2025 but would have to push back the target date for reaching the euro zone's common 3% deficit goal to 2029 from 2027.

REFORMS

Barnier, a conservative, was appointed by President Emmanuel Macron nearly two months after a snap election delivered a hung parliament. For now, his government of centrist and conservative ministers has the tacit support of the far-right National Rally, and depends on it.

A left-wing alliance won most seats in the election but without an absolute majority and Macron chose not to appoint a prime minister from its ranks.

France Unbowed lawmakers, who say the vote was "stolen" and that there should be a left-wing prime minister, brandished their voter cards as Barnier started speaking and frequently shouted him down during his speech.

"The French did not vote for you," some yelled.

Barnier ignored the heckles but acknowledged the election had resulted in a divided parliament. Nonetheless, he said his government would need to push reforms through.

"The French would not forgive us for standing still," he said.

Among policy plans he broadly outlined, he said he was open to "reasonable and fair" changes to the pension system - a key Macron reform, which was enacted in 2023 despite nationwide protests.

Addressing persistent concerns over the cost of living, Barnier announced a 2% increase of the minimum wage.

France would also pursue investments in the nuclear energy sector, including new EPR reactors, he said.

($1 = 0.8974 euros)