France Nears 2026 Budget Deal Amid Concessions and Corporate Surtax Extension

Government Offers Concessions to Secure Budget Approval

France is reportedly nearing a deal on its 2026 budget, following a series of concessions made by Prime Minister Sebastien Lecornu's government to various political parties. These compromises are crucial as President Emmanuel Macron's government operates without a clear majority in parliament, making the passage of the budget a protracted and challenging process. The negotiations have spanned months, at times necessitating a rollover budget to maintain state functions.

Key concessions aimed at garnering support, particularly from the Socialist Party, include reversing plans to cut a tax rebate on pensions. Additionally, the government has proposed a €50 monthly increase in income supplements for approximately 3 million low-income households. Other measures include extending subsidized meals for university students and introducing new initiatives to boost affordable housing.

Corporate Surtax Extended to Fund Social Measures

To finance these social spending initiatives, the government plans to extend a corporate surtax on large companies through 2026. This surtax, initially introduced in 2025 and intended to be temporary, is now expected to generate an estimated €8 billion. The tax applies to around 400 large companies, with rates set at 10.3% for those with revenues between €1 billion and €3 billion, and 20.6% for companies exceeding €3 billion in revenue for the fiscal year ending on or after December 31, 2025.

The extension of this corporate surtax is a central component of the government's strategy to keep the budget deficit under 5% of GDP for 2026. The draft Finance Bill for 2026 was initially published on October 14, 2025, and is expected to be adopted before December 31, 2025, following parliamentary scrutiny.

Bank Chief Criticizes Surtax, Warns of Investment Impact

The decision to extend the corporate surtax has not been without criticism. Daniel Baal, Chairman of Credit Mutuel, France's fifth-largest bank by assets, voiced strong concerns. He stated that extending the surcharge risks driving investment out of the country and could render France's corporate tax rate 'completely uncompetitive' compared to other European nations.

Baal expressed fears that the surtax could become permanent, remarking, 'If you want investments to continue happening outside of France, this is exactly what you should do.' He further argued that the tax would impact companies like Credit Mutuel, which 'produce wealth in France and share that wealth in France.' Analysts from ING have also cautioned that the budget's tax increases are likely to weigh on investment and hiring in 2026, potentially having a negative impact on economic growth.

Political Maneuvering and Future Outlook

The concessions appear to have eased immediate political tensions. Senior Socialist lawmaker Boris Vallaud indicated that the Prime Minister's announcements might prevent a no-confidence vote against the government. However, the Socialists are still seeking 'assurances' regarding the reintroduction of a property wealth tax and stricter taxation on holding companies to further address the country's deficit levels.

Despite the progress, the government may still need to utilize constitutional powers, such as Article 49.3, to push the budget through without a direct parliamentary vote, a move that would likely trigger further no-confidence motions. The public debt, which reached 117.4% of GDP at the end of the third quarter of 2025, is projected to continue rising, potentially reaching 120% of GDP by 2027.