France – 2027 budget: Fiscal consolidation must now resume
The 2027 budget, adopted by the French Council of Ministers today, calls for a reduction in France’s fiscal deficit to 5% of GDP in 2027 (down from 5.4% in 2026). This is a first step towards the multi-year fiscal consolidation needed to stabilise the public debt-to-GDP ratio. This ratio is expected to rise further in 2027 and until the deficit is reduced to 3% of GDP. Furthermore, given the increase in some expenditures (+0.6 pp of GDP for debt service and defence spending), the projected fiscal effort amounts to 1 pp. Nearly one-third of this effort would come from higher compulsory levies, and two-thirds from curbing government and social spending.
2027 Draft finance law: A step in the right direction
The government is forecasting an improvement in the fiscal deficit from 5.4% of GDP in 2026 to 5% in 2027. This projection is based on a credible growth assumption of 1%. To achieve this target, compulsory levies (CL) are expected to rise to 44.2% of GDP, an increase of 0.3 pp (the same increase as in 2026, compared with +0.9 pp in 2025). The public spending-to-GDP ratio would decline by 0.2 pp to 56.9%. The effort required to reduce the deficit to 5% is greater than it appears. Indeed, some expenditures will increase (interest payments by 0.4 pp and defence spending by 0.2 pp).
Consequently, the fiscal effort for next year amounts not to 0.4 pp, but to 1 pp of GDP. One-third of this will be achieved through increased CL, and two-thirds through spending cuts. Social spending will contribute, notably through the cancellation of EUR 3 billion in social contribution reductions for low-wage earners, as well as efforts totaling EUR 6 billion each in the areas of pensions and healthcare. Social spending shows the largest deviation from pre-COVID levels, with an increase representing 1.2 pp of GDP, nearly half of the gap between the 2026 budget balance and a 3% deficit. Government spending, excluding interest payments and defence, is expected to be frozen in nominal terms.
Author
BNP Paribas Team
BNP Paribas
BNP Paribas Economic Research Department is a worldwide function, part of Corporate and Investment Banking, at the service of both the Bank and its customers.
