A Temporary Special Law to Ensure State Continuity

In response to the urgent need to avoid administrative paralysis, a minimalist text consisting of only three articles will be presented to the Council of Ministers this Wednesday. This transitional bill aims to maintain the functioning of the state in the absence of a finalized budget for 2025.

Taxes Maintained, but Without Indexation

The key measure of this special law allows the government to continue collecting existing taxes. However, the income tax bracket adjustment for inflation is not included, as confirmed by the Council of State on Tuesday, December 10. Without subsequent correction, this omission could lead to 380,000 new taxpayers and increased taxes for 18 million households in 2025.

President Emmanuel Macron has committed to introducing a complementary bill at the beginning of 2025 to include this necessary adjustment. Meanwhile, the Nouveau Front Populaire party is considering an amendment to the special law to incorporate the tax bracket revision. However, this move carries significant legal risks: even if adopted, the Constitutional Council might strike it down, further emphasizing the critical need for a comprehensive 2025 budget.

A Limited but Essential Law

In addition to maintaining tax revenues, the special law will extend state expenditures at their 2024 levels. It also includes provisions to allow the State and Social Security to continue borrowing on financial markets, a crucial step to ensure the payment of social benefits and public sector salaries.

However, pension increases are not addressed in this law. Fortunately, the Social Security Code guarantees an automatic rise in base pensions for private-sector employees and civil servants starting in January 2025, by 2.2%, reflecting inflation. This increase, far more generous than the six-month freeze initially proposed in the Barnier budget, will cost the pension system €6.5 billion, worsening an already projected deficit of over €10 billion in 2025.

This special law is a crucial transitional step, but it underscores the urgency for the government to find consensus on the 2025 budget to provide a sustainable and balanced financial framework.