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% (see our analysis of French growth drivers). 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.
A compromise seems likely despite a tight schedule
The French National Assembly will start reviewing the budget on Tuesday 13 October. The government will need to ensure that a majority vote against the draft budget does not form. The current circumstances, including increasing sovereign bond yields and the upcoming presidential election, call for a consensus based on fiscal consolidation of the size proposed by the government.
If Parliament does not pass a budget by the end of the year, the government will have to choose between implementing the government’s budget proposal by executive order (only possible if there was no parliamentary vote) or through a special law (as in 2025 and 2026). A special law would enable tax collection, while the government and social security agencies could continue to issue debt. In this case, the 2026 budget would apply in 2027 (without indexation) until Parliament passes a budget in the first few weeks of the year. This must occur before the end of February (when Parliament’s session ends, earlier than usual due to the presidential election).
The one-year postponement of the 5% budget deficit target has a measurable impact
The gap between the budget adopted for 2026 (deficit of 5% of GDP) and the actual budget outcome (deficit of 5.4%) is due to unforeseeable circumstances (the conflict in Iran and extreme drought). However, postponing the deficit target previously set for 2026 to 2027 comes at a cost:
1) the public debt-to-GDP ratio is expected to reach 121% in 2027 according to our forecasts (1 pp above our scenario with a 5% target in 2026 and a deficit reduced to 4.5% in 2027),
2) the (upcoming) postponement to 2032 of the 3% of GDP deficit target (a commitment that most presidential candidates plan to make) rather than in 2029 (the government had committed to this with the European Commission in 2024).
In 2032, the public debt-to-GDP ratio would stabilise at 124% of GDP (instead of 121.5% if the deficit had been reduced to 5% of GDP as early as 2026 and to 3% of GDP by the end of the decade).
Another delay in fiscal consolidation would further erode France’s credibility
This new delay could stem either from a decision by the government elected in May 2027 to immediately implement part of its agenda, or from the enactment of a special law that would remain in effect until (just after) the likely legislative elections in June 2027 or for the entire year. If the government emerging from the presidential elections were to resume fiscal consolidation only in 2028 (with a deficit of 5% of GDP that it projects to reduce to 3% by 2032), public debt would reach 126% of GDP by that date (a one-year delay in fiscal consolidation would result in an additional 2 pp of debt). This further delay could potentially undermine the credibility of the next government, given that budget targets were not met in three out of four years between 2023 and 2026, a situation that would be costly amid a sharp rise in long-term interest rates.
Furthermore, a higher deficit would increase the amount of debt to be issued within an already tight schedule. The Agence France Trésor (AFT) has announced debt issuances totaling EUR 340 billion in 2027 (an increase of EUR 20 billion compared to 2026). This increase is due to the maturing COVID related debt (beginning in 2027 and continuing largely through 2030), while the amount of debt to be issued to finance the deficit will remain stable compared to 2026. A decrease from this last driver would be needed in subsequent years so that the AFT’s debt issuance can stabilise.
