2025 Budget: Deficit & Public Debt Concerns

1. The year 1986: The shock of disinflation and decentralization

Although the oil crisis dates back to the 1970s, 1986 was a pivotal year.

• The context: France is emerging from the failed recovery of 1981 and applying the policy of “competitive disinflation” (wage rigor, high interest rates to defend the Franc).

• Why the 3 sectors are plunging:

  • The State: Suffers the cost of industrial restructuring (steel, coal) and the burden of debt which is increasing due to very high interest rates.

  • Social Security: Mass unemployment has taken hold structurally (exceeding 9%), destroying contribution revenue and causing compensation expenditure to explode.

  • Communities (APUL): It is the backlash of Lois Defferre (1982-1983) on decentralization. Transfers of skills (notably social action to the departments) are starting to weigh heavily, without local tax revenues following at the same pace.

2. 1995-1996: The hangover from the 1993 recession

The recession of 1993 (-0.6% growth) was the most serious since the post-war period, linked to the crisis of the European Monetary System (EMS). The inertia of public finances meant that the consequences were felt in 1995-1996.

• The State: Tax revenues have collapsed. The State must also recapitalize public companies in serious difficulty (Crédit Lyonnais, for example).

• Social Security: The deficit has become so abysmal (the “Secu hole”) that it triggers the famous Juppé plan in 1995causing the biggest strikes since May 68. It was in 1996 that the CADES (Social Debt Amortization Fund) and the CRDS were created to “isolate” this debt.

• Communities: They are bearing the brunt of the breakdown of real estate bubble of the early 1990s, which dried up their revenues based on real estate transactions (transfer taxes).

3. 2009: The Great Recession (Subprime Crisis)

This is the classic and massive exogenous shock. GDP collapses by -2.9%.

• The State: It absorbs the main shock via the recovery plan (Sarkozy/Devedjian Plan): scrappage bonuses, investments in infrastructure, and support for business cash flow. Corporate tax revenues are evaporating.

• Social Security: Immediate scissor effect. Job destruction causes employer and employee contributions to fall, while unemployment and solidarity expenses explode.

• Communities: They are experiencing a drop in their tariff and tax revenue, while having to maintain their investments to support the local economy, often pushed by the State.

4. 2011-2013: The sovereign debt crisis in the Euro Zone

France, like Europe, is suffering a “double-dip” recession caused by the debt crisis (Greece, Spain, Italy) and premature budgetary consolidation (austerity).

• The State: Despite massive tax increases at the end of Nicolas Sarkozy’s mandate and the start of that of François Hollande, sluggish growth prevents deficits from being reduced quickly.

• Social Security: Unemployment is reaching new historic highs, keeping the unemployment branch and the family/solidarity branch in a heavy deficit.

• Communities: The state begins to freeze and then drastically reduce the DGF (Global Operating Grant) paid to communities to force their debt reduction. Taken by surprise, they found themselves in a technical deficit before painfully adjusting their investment spending in the following years.

5. 2015: Stagnation, security shocks and CICE

The year 2015 is special. It is not a financial crisis, but a convergence of several specific shocks in a context of very sluggish growth.

• The State: He incurs the initial cost of CICE (Tax Credit for Competitiveness and Employment), a massive reduction in corporate taxation not yet offset by growth. Furthermore, following the Charlie Hebdo and Bataclan attacks, François Hollande decreed that “the security pact prevails over the stability pact”causing the expenditure of state ministries (Defence, Interior) to explode.

• Social Security: Still weighed down by very high unemployment before the curve began to reverse at the end of 2016.

• Communities: The purge of the DGF (reduction in state allocations) is reaching its climax, putting local budgets, in particular those of the departments which finance the RSA, in the bright red.

6. 2020-2021: The COVID-19 crisis and “Whatever it takes”

A voluntary and administrative shutdown of the economy.

• The State: Abysmal deficit linked to the Solidarity Fund, partial unemployment (of which the State finances a large part), and the spectacular fall in tax revenues (VAT, IS).

• Social Security: It breaks all deficit records. Not only do contributions collapse during confinements, but health spending explodes (purchases of masks, vaccines, massive PCR tests, bonuses for nursing staff via the “Ségur de la santé”).

• Communities: Closure of local public services (canteens, swimming pools, transport) leading to loss of tariff revenue. Fall in CVAE (business tax) and tourist taxes, combined with emergency expenses (purchase of regional masks, aid to associations).

On the other hand, the balances of public administrations in 2025 which are simultaneously negative appear a little isolated: in fact, the State balance improves by €23 billion compared to 2024, while the APUL balance also improves by +€2.2 billion.

Source : INSEE, March 2026.

On the other hand, the ODACs (State operators in national accounts) have seen their negative balances since 2023 deteriorate further (-€0.7 billion compared to the previous year), just like the social security administrations which are showing for the first time since the health crisis a deficit balance of -€6.7 billion. INSEE recognizes this: “The balance of social security administrations (ASSO) deteriorates by €7.9 billion in 2025 to reach -€6.7 billion, despite the surplus situation of CADES (+€15.4 billion). » Indeed, revenues are less dynamic (+2.4%) than expenditures (+3.4%), driven by “partly structural growth with the aging of the population (affecting pension and health expenditure). »

However, it seems that this paradoxical situation – a public deficit reducing more quickly than expected and a need for financing for each level of public administration – is explained by a double phenomenon:

On the one hand, the State in the degraded situation of public finances that we are experiencing is now less inclined to accept the transfer to its leader of the deficits of other levels of administration – in short, it makes less use of its guarantee in the event of a degraded situation;

On the other hand, the conditions of the financial discussion, with the non-adoption of the PLFSS within the allotted time coupled with the use of a special law, then a late adoption of the PLF in February 2025, did not make it possible to put in place sufficient regulatory mechanisms to limit the drift in the accounts of operators, APUL and social security.

… But significantly at the level of social security administrations:

INSEE also presents the accounts – not consolidated – by level of administration in terms of revenue and expenditure.

Source : INSEE, reprocessing iFRAP Foundation March 2026

We see with the preliminary figures that the State balance improves by €23 billion under the effect of a much greater increase in revenue than in expenditure (respectively +€30 billion versus +€7 billion, including mainly the debt burden (+€6.8 billion^[1]). As INSEE notes: “ its revenues are very dynamic (+6.7%) partly thanks to the introduction of new taxes » That is to say mainly favorable base effects with income tax (+€7.6 billion), corporate tax (+€3.6 billion), as well as new taxes such as CEBS (+€7.5 billion), the tax on share buybacks (+€0.5 billion) and the CDHR (+€0.4 billion). Together, the yield from these measures represents +€19.6 billion or 65.3% of revenue.

This is also the case for APUL, whose balance increases from €2.2 billion to -€15.6 billion in 2025. Expenditures increase by €5 billion while revenues are more dynamic with +€7.2 billion. The recipes “ grew at the same rate as in 2024 (+2.3%, or +€7.2 billion in 2025) (…) supported by levies on real estate transactions allocated to municipalities and departments which are on the rise again, the recovery of the real estate market being coupled with an increase in the DMTO rate voted by a large number of departments “. On the contrary, spending is slowing down, particularly through intermediate consumption expenditure (purchases) which is declining in municipalities and departments. On the other hand, investment increases in the municipalities but decreases in the departments and regions, which seems classic due to the municipal electoral cycle. The increase in APUL expenditure seems more moderate than the change in expenditure by local authorities estimated by the Court of Auditors (+€6.6 billion).^[2]) in general accounting. We can however estimate that the implementation of DILICO and the contribution of €5.4 billion to the recovery of public finances put in place, although undoubtedly lower in execution due to a drop in yield from freezing the share of VAT allocated, has undoubtedly worked.

The widening of the deficit of ODAC (State operators) could be explained by a drop in revenue (-€1.4 billion) twice as strong as that of expenditure (-€0.7 billion), without it being possible to know at this stage whether this is a management consequence of a more pronounced capping of assigned taxes, in order to force certain operators to draw on their cash flow.^[3]or to less dynamic own revenues.

Finally, regarding social security administrations (ASSO), the deterioration of €7.9 billion in their balance to -€6.7 billion in 2025 compared to +€1.1 billion in 2024 results almost entirely from the widening of the social security deficit, expected in general accounting to amount to -€21.6 billion^[4]. Indeed, the balance of CADES is structurally in surplus (see supra) makes it possible to improve the balance of ASSO by +€15.4 billion, while that of UNEDIC taking into account the levies made by the State^[5] is in balance for 2025 (€3.35 billion^[6]). To the ODASS loan differential which could overall contribute to an additional deterioration of around €0.3 billion. Lack of clear political arbitration and major structural reforms in the social field, social security administrations are becoming the main source of the increase in the public deficit.

Public spending which will increase by nearly €41.4 billion in 2025:

Even if the public deficit is down by -€16.6 billion between 2024 and 2025 (-9.8%), due to an increase in public revenue of nearly €58 billion including +€38.7 billion in taxes and +€13.9 billion in social contributions, materialized by an increase in compulsory deductions (excluding tax credits and imputed social contributions) of +0.8 point (from 42.8% of GDP in 2024, to 43.6% of GDP in 2025, i.e. from €1,256.2 billion to €1,305.8 billion, + €49.6 billion), public spending remains dynamic at +2.5% in value (+€41.4 billion).

Source : INSEE, March 2026.

Expenditure is driven by social benefits, i.e. +€23.6 billion (+3.2%), but also by remuneration expenditure (+€7 billion) which is growing barely faster than interest expenditure on the public debt (+€6.6 billion). Excluding interest expenditure, public expenditure still increases by +2.2% or +€34.8 billion. Thus the contribution of social benefit expenditure to the evolution of public expenditure excluding interest amounts to 67.8% compared to 57.4% if we consider total public spending (excluding tax credits).

• Retirement expenditure, which constitutes the first item of social benefits, increases by +€13.2 billion due to the revaluation of basic pensions by 2.2% on 1^is January 2025.

• Social minimum expenses (RSA, family benefits, AAH etc.) “ are not very dynamic in 2025 compared to 2024 with a revaluation of 1.7% of social and family benefits in 1^is avril 2025 ».

• Expenditure on unemployment is stable (-€0.1 billion) with the deterioration of the labor market being offset by reforms affecting compensation for job seekers;

• On the other hand, health spending is increasing, particularly via market health reimbursements (+€5.5 billion), while other health spending is slowing down (daily allowances +€0.8 billion, incapacity and invalidity benefits (+€0.4 billion).

Finally, transfer expenditure linked to the removal of the last public supports for the economy (business and household) fell by €1.1 billion, to still €192.1 billion.

Public debt at €115.6 billion, up 3 points compared to 2024:

Public debt would increase by 3 points of GDP to €115.6 billion, in particular because the actual deficit would remain very far away even at -5.1% of the stabilizing balance (-2.3% of GDP), or -2.8 points.

Source : iFRAP calculations based on INSEE March 2026 data.

However, certain administrations would begin to reduce their debt, in particular the ODACs whose debt in volume terms would fall by 0.1 point of GDP (-€0.6 billion) in 2025. It should be noted that the debt of social security administrations would also be stabilized in volume between 2024 and 2025, despite the widening of their deficit.

Source : INSEE March 2026.

The debt would, however, increase in value by nearly €154.4 billion in 2025 to €3,460.5 billion. Increase still driven overwhelmingly by the State (+€136.2 billion, or 88.2%) and much less by local authorities (8.5%) and social security administrations (3.7%).

Source : INSEE March 2026.

^[1] Even though the increase in the public debt burden is lower, around +€6.5 billion.

^[2] https://www.ifrap.org/etat-et-collectivites/collectivites-locales-depuis-2019-les-recettes-ont-augmente-plus-que-linflation

^[3] https://acteurspublics.fr/articles/economies-le-gouvernement-veut-piocher-dans-la-tresorerie-des-operateurs-de-letat/

^[4] https://www.ifrap.org/emploi-et-politiques-sociales/un-deficit-de-la-securite-sociale-pire-quen-2024-mais-meilleur-quattendu

^[5] https://www.ifrap.org/emploi-et-politiques-sociales/perspectives-financieres-de-lunedic-21-mdeu-de-deficit-en-2026

^[6] In the form of lower unemployment insurance exemption compensation, under the programmatic trajectory of the decree of December 27, 2023.