France's Emergency Budget Legislation: Temporary Fix Amid Political Uncertainty

France's outgoing government proposed emergency legislation to permit continued spending, tax collection, and debt issuance starting next year, preventing a shutdown after the 2025 budget collapse. The temporary law will maintain most spending at current levels, affecting taxes and debt issuance until a new budget is passed.

France's outgoing government unveiled emergency legislation on Wednesday to authorize the state to maintain spending, tax collection, and debt issuance at the beginning of next year. This measure aims to prevent a government shutdown akin to that experienced in the U.S., following the collapse of Prime Minister Michel Barnier's administration last week, which nullified the 2025 budget bill.

The bill serves as a temporary fix until France's fragmented parliament approves a more enduring budget drafted by a prospective new government, anticipated by early 2025. Under this legislation, most spending will remain at 2024 levels without accounting for inflation, with pensions as an exception due to a 2.2% inflation adjustment costing 6.5 billion euros.

Additionally, immediate spending for certain investments and subsidies is postponed pending a new budget, such as planned tax breaks for farmers. The law ensures continued tax collection but prevents tax bracket inflation adjustments, affecting 380,000 households. Despite unspecified debt issuance targets, France aims for 300 billion euros in medium and long-term bonds in the next year, subject to revision in a new budget. Social security bodies will continue capital market borrowing.

(With inputs from agencies.)