French government to present 2025 belt-tightening budget
Budget squeeze aims to cut deficit to 5% of GDP next year
Barnier promises to spare middle class from tax increases
Concessions likely to get budget through divided parliament
Budget to be published at 8 pm on Thursday (18:00 GMT)
Adds Barnier quote, paragraph 7, adds graphic, more background
By Leigh Thomas
PARIS, Oct 10 (Reuters) -France's government is to deliver its 2025 budget on Thursday with plans for 60 billion euros ($65.68 billion) worth of tax hikes and spending cuts to tackle a spiralling fiscal deficit.
Prime Minister Michel Barnier's new government is under increasing pressure from financial markets and France's European Union partners to take action after tax revenues fell far short of expectations this year and spending exceeded them.
But the budget squeeze, equivalent to two points of national output, has to be carefully calibrated to placate opposition parties, who could not only veto the budget bill but also band together and topple the government with a no-confidence motion.
Lacking a majority by a sizeable margin, Barnier and his allies in President Emmanuel Macron's camp will have little choice but to accept numerous concessions to get the budget bill passed, which is unlikely before mid to late December.
The far-right National Rally, whose tacit support Barnier needs to survive any no-confidence motion, has already helped derail a government proposal to postpone a pension increase by six months to save 4 billion euros.
Members of Macron's party are also loathe to see the president's legacy of tax-cutting go up in smoke, with his former prime minister Gabriel Attal saying on Wednesday: "The budget is light on reforms and too heavy on taxes."
Speaking to reporters on Thursday, Barnier said: "The budget bill can be improved as I only had two weeks to put it together and in two weeks it's impossible to do everything perfectly."
Barnier has said he will spare the middle class and instead target big companies with a temporary surtax and people earning over half a million euros per year.
All taxpayers will nonetheless be hit by plans to restorea levy on electricity consumption to where it was before an emergency reduction during the 2022-2023 energy price crisis.
GROWING RISKS
The government has said the budget bill will reduce the public deficit to 5% of gross domestic product (GDP) next year from 6.1% this year - higher than almost all other European countries - as a first step towards bringing the shortfall into line with an EU limit of 3% in 2029.
Already swollen to 3.2 trillion euros, France's national debt burden is set to reach nearly 115% of GDP next year and interest payments will be the biggest single budgetary expense in the coming years, exceeding even big-spending departments such as defence and education.
While tax hikes will make up one third of the 60 billion euro budget squeeze, the rest will come from spending cuts, with 20 billion cutting across France's ministries and the rest hitting separate spending on welfare, health, pension and local government budgets.
France's borrowing costs surged after Macron called a snap parliamentary election and his centrist party then lost to a left-wing alliance. Financial markets' shifting perception of French risk has seen the premium on the country's bonds surpass that ontheir Spanish equivalent.
Investors are likely to pay close attention to whether the budget can get through parliament without being watered down too much, although ultimately Barnier may have to resort to using special constitutional powers to bypass lawmakers.
Rating agency Fitch is due to review its assessment of France on Friday, though markets see a bigger risk of a downgrade when Moody's updates it stance on Oct. 25.
The budget will also face scrutiny from the European Commission, which has subjected France to an excessive deficit procedure for falling foul of the EU's fiscal rules.
($1 = 0.9136 euros)
Risk premium on French bonds has risen above peers https://reut.rs/3NlvHC3
Reporting by Leigh Thomas
Editing by Gareth Jones
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