PARIS (Reuters) -The French government's 2026 budget plans are based on rosy economic assumptions and its belt-tightening measures may fall short - or never even take shape if the new administration collapses, the independent fiscal watchdog said on Tuesday.
Prime Minister Sebastien Lecornu, reappointed on Friday having quit at the start of last week, presented a 2026 budget bill to parliament on Tuesday while facing the prospect of a no-confidence vote if his leftist opponents cannot stomach his budget plans.
With the risk premium on French bonds high and credit ratings under pressure, financial markets are increasingly sensitive to the political turmoil as it makes the prospect of France getting its fiscal house in order seem ever more remote.
The euro zone's second-largest economy has a budget deficit nearly double the European Union's 3% limit last year and a debt-to-GDP ratio heading towards 118% - the third-highest in the EU after Greece and Italy, according to Eurostat.
President Emmanuel Macron has tasked five different prime ministers in less than two years with reducing the deficit, the widest in the euro zone, to get the country's public finances back on an even keel.
But having lost control of parliament, and with opposition parties vehemently opposing his budget-squeezing plans, Macron's prime ministers have been toppled one after another, taking their fiscal plans with them.
Lecornu's budget, already submitted to the Haut Conseil des Finances Publiques for review, aims to narrow the deficit to between 4.7% and 5% of GDP — a modest improvement from this year's 5.4%, the fiscal watchdog said.
The plan hinges on a more than 30 billion euro ($34.7 billion) budget squeeze, including cuts to corporate tax breaks, tighter rules on social welfare contributions, and new levies such as a small parcel tax and an exceptional surtax on complementary health insurers, the Haut Conseil said.
It also clamps down on the taxation of holding companies used by wealthy people to lower their tax bills, stopping short of a 2% tax on wealth over 100 million euros as demanded by the Socialists.
"Overall, the public balance forecast for 2026 submitted to the Haut Conseil is weakened by an optimistic economic scenario and, more importantly, by the risk that the projected revenue and savings measures may be under-delivered — or may simply not materialise at all," it said.
The government forecasts the economy will grow 1% next year, which the watchdog said was based on stronger private demand despite tougher belt-tightening. The watchdog does not issue its own forecasts.
The budget squeeze, equivalent to 1% of gross domestic product, is made up of 17 billion euros in spending cuts and nearly 14 billion in new taxes, the Haut Conseil said.
(Reporting by Leigh Thomas; Editing by Benoit Van Overstraeten and Hugh Lawson)
