France’s newly appointed Prime Minister Sébastien Lecornu has made it clear: a return of the wealth tax is off the table, and his government plans to steer down the budget deficit to around 4.7 percent of GDP in 2026. These early policy signals offer a glimpse into Lecornu’s balancing act—avoiding politically fraught fiscal measures while attempting to impose discipline on public spending. Political realities, economic constraints, and parliamentary fragility all loom large as he crafts the next national budget.

A Firm Stance on Fiscal Strategy

In public remarks, Lecornu shut down talk of reintroducing the wealth tax, including proposals floated by left-wing voices to levy a 2 percent tax on the ultra-rich. His rationale: such measures would undermine investment, competitiveness, and job creation. Instead, he says the fiscal burden can be recalibrated across existing taxes. The new prime minister also reaffirmed that he would not suspend or reverse the reform of the pension system—another divisive issue that had triggered intense public debate under his predecessors.

His objective for 2026 is clear: reduce the deficit from the projected 5.4 percent this year to about 4.7 percent. That target is only modestly more ambitious than the previous plan under François Bayrou (4.6 percent), but in Lecornu’s view, it strikes a balance between fiscal consolidation and political feasibility. He frames the upcoming budget as one to be “written from scratch” after consultations with unions, parties, and civic groups—though he also recognizes that true ownership lies with parliament through compromise and negotiation.

Lecornu enters office without a solid majority. Macron’s alliance relies on external support from both conservatives and socialists to pass key legislation. Among his first tests will be managing the left’s demands—chief among them reintroducing the wealth tax or suspending pension reforms in exchange for support. By rejecting those demands up front, Lecornu risks antagonizing socialist partners, opening the door to votes of no confidence or gridlock.

Opponents have already voiced sharp criticism. Socialist MPs contend that he is simply repackaging earlier austerity plans under new branding. Without meaningful divergence from past formulas, they suggest, his government may find itself vulnerable in parliament. Lecornu has warned that failure to secure a budget agreement promptly could send the deficit ballooning to as high as 6 percent in 2026, jeopardizing fiscal credibility and investor confidence.

He also sought to calm market fears, insisting that international institutions like the IMF are not pressing down on France. Yet with public debt exceeding 110 percent of GDP and economic growth fragile, the credibility of France’s fiscal trajectory will be under scrutiny both domestically and abroad.

Economic Trade-offs and Risks

Lecornu’s refusal to reimpose wealth tax reflects a broader strategy: stimulate growth by avoiding heavy direct charges on capital, while trimming expenditures and redistributing tax burdens via existing instruments. His plan reportedly includes €6 billion in spending cuts and operating economies, with additional allocations for health, pensions, and public services near €5 billion. The 2026 draft will strive to balance social demands with financial exigency.

However, large-scale cuts and structural reforms risk dampening growth at a delicate moment. France’s economy has shown signs of stagnation in recent quarters, and harsh consolidation measures could squeeze consumption and investment. Some economists warn that an overly aggressive budget correction could tip France toward underperformance, undermining revenue projections that underpin the deficit target.

Additionally, regional obligations within the European context impose constraints. France has committed to reducing its deficit to the EU’s 3 percent threshold by 2029, putting added pressure on the 2026 plan to show credible progress. Any fiscal misstep or political standstill could attract scrutiny from European institutions or create pressure from markets assessing French sovereign risk.

Negotiation Leverage, Symbolism, and Institutional Dynamics

Lecornu’s initial posture reflects a broader calculus: avoid polarizing measures, promote stability, and underline continuity rather than rupturing from Macron’s centrist approach. By ruling out the wealth tax at the outset, he positions his administration as business-friendly and cautious, hoping to reassure markets and moderate voices. But the symbolism cuts both ways—rejecting a tax proposal widely supported by the public could weaken his appeal among progressive and left-leaning groups.

His invocation that the budget is ultimately shaped in parliament acknowledges the limits of executive control. In a socially fractured, heterogenous political landscape, the art of coalition building may outweigh policy purity. Every spending cut, every tax adjustment, and every fiscal compromise will be analyzed for its political durability.

The looming formation of his government—which he aims to complete by early October—will further test his ability to secure support. Cabinet picks and ministerial responsibilities will likely reflect the need to placate both centrist allies and parties with veto power over key votes.

Lecornu must also grapple with external expectations. Credit rating agencies, investors, and European watchdogs will closely monitor France’s ability to adhere to its fiscal pledges. A misstep—such as slippage in deficit targets or backtracking on announced priorities—could erode confidence and precipitate pressure for deeper reforms.

By rejecting an unpopular wealth tax and anchoring his ambitions in modest deficit reduction, Lecornu seeks a narrow but stable path through France’s current political and fiscal turmoil. Whether that path suffices to sustain momentum depends on his ability to marry pragmatism with political finesse, all while navigating internal divisions and external pressures.

(Adapted from Bloomberg.com)

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