French government defends budget squeeze against claims of unfairness

By Leigh Thomas and Dominique Vidalon

PARIS (Reuters) -France's government said on Friday its 2025 belt-tightening budget was necessary to rein in its "colossal" debt burden as it faced criticism from the right and left for demanding unfair sacrifices on the French.

The government's 2025 budget, delivered on Thursday, contained plans for 60 billion euros ($65.5 billion) of spending cuts and tax hikes focused on the wealthy and big companies to tackle a soaring fiscal deficit.

Prime Minister Michel Barnier's minority government is facing pressure from Paris' European Union partners and financial markets, where France's risk premiums have surged in recent months.

"Facing a spiralling deficit, we must act and that is exactly why we presented a recovery budget yesterday. We absolutely need to regain control over our debt and our deficit," Finance Minister Antoine told France 2 TV.

Prime Minister Michel Barnier had promised the budget squeeze, equivalent to two percent of economic output, would spare the middle classes. Two-thirds of the 60 billion euro squeeze will come from spending cuts and the rest from tax hikes.

"This is a horror gallery from finance ministry technocrats. All we see is fiscal injustice and nowhere a durable improvement in the nation's finances," hard right lawmaker Jean-Philippe Tanguy said.

The budget bill could get a rough ride in parliament from opposition parties and Barnier may need to use special constitutional powers to bypass parliament, although that would probably prompt a no-confidence motion.

Tanguy's National Rally party holds the balance of power in the lower house of parliament and could determine whether Barnier's government survives a no-confidence motion.

CRITICISM FROM FAR RIGHT AND FAR LEFT

Tanguy criticised plans to reduce tax breaks on payroll contributions on low-income workers, as well as plans to reduce the number of teachers because of declining numbers of school-age children.

Far-left lawmaker Eric Coquerel, who heads the finance commission in the lower house of parliament, described the belt-tightening drive as an "austerity budget" and said was "deeply unfair".

"You are going to reduce growth and worsen poverty," he added.

The government hopes to cut the public sector budget deficit to 5% of gross domestic product next year from an estimated 6.1% this year, among the highest the European Union.

JPMorgan economist Raphael Brun-Alguerre said he expected the budget to only reduce the fiscal shortfall to 5.4%, with economic growth falling short at 0.7% instead of the 1.1% the government is hoping for.

With few surprises in the budget, French bonds were little changed on Friday with the yield on the 10-year benchmark at 3.018%.

France's borrowing costs surged after President Emmanuel Macron called a snap parliamentary election and his centrist party then lost to a left-wing alliance.

Macron's nomination of Barnier, a conservative former Brexit negotiator for the European Union, has done little to end the political uncertainty, leaving financial markets on edge.

France's public finances have sharply deteriorated this year as tax income fell short of expectations and spending exceeded them, leaving French debt at risk of a ratings downgrade.

Ratings agency Fitch is scheduled to update its view on France's debt late on Friday, although markets see a bigger risk of a downgrade from Moody's when it reviews its position at the end of the month.

"Our policy is not made for rating agencies but we obviously look at the international climate and at how France is viewed," Finance Minister Armand said.

($1 = 0.9155 euros)

(Reporting by Leigh Thomas and Dominique Vidalon; editing by Sudip Kar-Gupta, Mark Heinrich and Christina Fincher)