French PM to extend tax on big companies to appease the left

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French Prime Minister Sébastien Lecornu has yielded to a new raft of demands from the Socialist Party, including a tax increase for the country’s largest companies, as he inches closer to finalising a 2026 budget.

At the helm of a fragile minority government, Lecornu also announced on Monday that he would use special constitutional powers to seek to bypass lawmakers to enact a budget. Forging a compromise with the opposition had proven impossible, he said.

Using the 49.3 clause special powers carries risks, since far-right and far-left opposition parties have promised to hit back with a no-confidence vote in the National Assembly. If that succeeds, Lecornu’s government falls and the budget is scrapped; if it fails, then the government survives and the budget passes.

The Socialists are the key swing voting bloc, although they only have 66 MPs out of the total 577. Party leaders have signalled that they view Lecornu’s new concessions favourably, including victories they obtained for students, working people and retirees after weeks of bitter negotiations.

“The prime minister made announcements that are a step in the right direction and allow us to consider the possibility of the budget not being censured,” Boris Vallaud, a senior Socialist lawmaker, told Le Parisien newspaper.

On Friday, Lecornu confirmed that he had climbed down from a series of proposals — such as freezing government spending outside defence and eliminating tax breaks for retirees — that would have helped lower the deficit. The prime minister also said he would expand the availability of subsidised meals for university students and boost low-income workers’ take-home pay with a benefit scheme.

Lecornu had already made big concessions to the Socialists in December to pass the welfare budget, in effect abandoning the only significant reform of President Emmanuel Macron’s second term — the hard-fought pension reform that increased the retirement age from 62 to 64. 

Vallaud’s latest comments suggest Lecornu may have again done enough to secure the abstention of the Socialists in the coming no-confidence vote. But Lecornu did break a promise made to the opposition in October that he would not use the 49.3 clause, but instead search for compromises.

It proved impossible to reach a deal since political parties do not agree on how France should begin narrowing its budget deficit, which stood at 5.4 per cent of national output at the end of last year.

Lecornu has a weak negotiating position because Macron’s centrist alliance no longer has a majority in the assembly and two prime ministers have already been toppled in just over a year.

Since no budget deal has yet been struck, France has been operating since the beginning of the year on a rollover budget from 2025 to keep public spending flowing for everything from pensions to defence.

The government aims to cut France’s deficit to about 5 per cent of GDP this year, but it has not fully detailed how it will pay for the most recent concessions.

It appears that much of the additional spending will be funded from the extension of what the government had promised would be a one-off tax on France’s biggest companies, which raised €8bn last year. Macron’s centrists had initially wanted to keep their promise not to extend the tax, although they later caved in by agreeing only to halve it rather than eliminate it.

But the Socialists won the battle, so the full tax will be maintained, albeit with a reduced set of targets, to hit only roughly 300 of the biggest companies instead of about 450 last year.

The government also broke another promise to companies by not lowering so-called production taxes, which are levied on the “value” companies create in France, not on profit or revenue. Business sees these as damaging to French competitiveness, and Macron had made eliminating them a key part of his economic agenda.

“France needs visibility and stability,” Lecornu wrote in an open letter to business leaders. “A new political crisis would weaken our country and weigh even more heavily on the economy and jobs.”