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France's newly-installed government on Thursday presented a draft budget containing 60 billion euros ($65.6 billion) in tax hikes and spending cuts, as analysts warned the package may not be enough to stave off ratings downgrades for the economy. The 2025 budget features a greater focus on tax-raising measures than some were expecting. Analysts also flagged "politically complicated" proposals such as a delay to an inflation adjustment for pensions, and cuts to local government, the civil service and the healthcare system. Other key elements include temporary additional taxes on large shipping firms and corporations with revenue of more than a billion euros a year, impacting around 440 companies; an income tax surcharge on households with incomes over 500,000 euros; the reintroduction of a levy on electricity consumption; and an increase in taxes and charges on airline tickets and cars with high emissions. One of the budget's core aims is to reduce France's projected 6.1% deficit for 2024 to 5% of gross domestic product next year — an effort to comply with European Union rules which state a member nation's budget deficit should not exceed 3% of GDP. The government set a new target of meeting this rule by 2029, an extension of its previous goal of 2027. It also warned the deficit could swell to 7% next year without action.

Political challenge

The task of finding 60 billion euros in a year left the government with few options, meaning it had to turn to those which are "politically complicated," Hadrien Camatte, senior economist for France, Belgium and the euro zone at Natixis, told CNBC's "Squawk Box Europe" on Friday. The fragile French government led by Prime Minister Michel Barnier has already faced one vote of no confidence this week, which it survived. The government was formed last month after fraught negotiations in the wake of the July parliamentary election, which handed the most seats to the left-wing New Popular Front — itself a relatively divided alliance — but failed to deliver any party or coalition a majority.

In acknowledgement of this, Barnier characterized the draft budget as a starting point to be debated by lawmakers and said he was open to changes that maintain its fiscal integrity. "There will be changes and there will be heated debate regarding pensions and social security contributions," Camatte said, with debate over the budget set to kick off on Oct. 21 and votes on various portions of it from Oct. 29. "The problem is when you have to find 60 billion, we have never found 60 billion in one year, it would be unprecedented, and that's why it's not very credible to find so huge an amount, especially with only a very fragile relative majority."

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