France’s public finances: Reducing debt without compromising growth

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Public debt is approaching 120% of GDP, above its 2021 peak and a sharp rise since the end of 2023. To preserve fiscal room for manoeuvre, France must restore fiscal sustainability through tighter control of public spending, complemented in the short term by additional revenue measures. Also available in French

by Lilas Demmou, OECD Economics Department

France’s high public debt is on an increasingly unfavourable trajectory. It rose sharply after the 2008 Global Financial Crisis, increasing from around 65% of GDP in 2007 to about 100% between 2015 and 2019. It then surged to more than 115% in 2020 alone following the COVID-19 crisis. After falling back to 110% at the end of 2023, it began rising very rapidly again and without policy adjustment, could reach 200% by 2050.

Following years of very low interest rates, France now borrows at around 4.5% at some maturities, while the spread with German government bonds is at its highest level since 2012. Interest expenditure increased from 1.2% of GDP in 2000 to 2.2% of GDP in 2025 and, despite the long average maturity of public debt, could approach 5% of GDP by 2050. This would be almost equivalent to the current education budget.

These developments are narrowing fiscal space, weighing on investment and growth by raising borrowing costs, and making public debt increasingly difficult to stabilise.

Pursuing ambitious and sustainable fiscal consolidation

Overly rapid or poorly designed consolidation could nevertheless be counterproductive. When economic activity is weak, abrupt spending cuts or increases in taxes on labour and investment reduce demand, employment and public revenue. The resulting slowdown in GDP can then limit or even offset the improvement in the debt-to-GDP ratio.

Consolidation should therefore follow a credible multi-year path that is ambitious but responsive to economic conditions. It should target ineffective programmes and prioritise measures with the smallest adverse effects on growth. Structural reforms and multi-year expenditure objectives are more likely to strengthen confidence than temporary measures that are repeatedly extended.

The adjustment needed to stabilise public debt is estimated at more than EUR 100 billion. Public expenditure accounts for around 57% of GDP, 7.4 percentage points above the euro-area average. France’s tax-to-GDP ratio is almost 44% of GDP and is among the highest in the OECD. The adjustment should therefore rely primarily on better expenditure control, although revenue will also need to contribute, at least temporarily.

Reducing spending while improving its effectiveness

Pensions, healthcare and economic affairs account for a large share of both the level and growth of public expenditure. Savings can be achieved in these areas without undermining their core objectives.

Note: Safety stands for “Public order and safety and for Recreation”, Culture for “Recreation, culture and religion”, Family for “Family and children”; Sickness for “Sickness and disability”; Public services for “General public services”.
Source: OECD Calculations based on OECD National Accounts database.

Putting the pension system on a sustainable footing and sharing the cost of ageing more fairly

Three main instruments are available to address the pressures that an ageing population places on the pay-as-you-go pension system: extending working lives, reducing benefits or increasing contributions. In France, despite previous reforms, the effective retirement age remains low and pension benefits are relatively high compared with peer countries, while contribution rates are already elevated. Policy action should therefore focus primarily on the first two instruments.

This would require resuming implementation of the currently suspended pension reform to raise the statutory retirement age to 64. France could then consider linking the retirement age, at least partly, to gains in life expectancy. Such reforms would increase employment among older people, strengthen potential growth and raise tax revenue. Previous reforms have successfully increased the labour force participation of people aged 55 to 59. However, in 2025, France’s employment rate of people aged 60 to 64 remained 12.2 percentage points below the OECD average.

Reforming the pension system should be accompanied by measures to promote the employment of older workers, including skills adaptation, improved workplace ergonomics, more flexible working-time arrangements and better career management.

The living standards of pensioners are comparable to those of the working-age population and are high by international standards. Pensioners also hold greater wealth on average. Some moderation in average pension benefits could therefore be considered.

Several options are available, including temporarily indexing pensions below inflation while protecting lower pensions, bringing the tax treatment of pensions closer to that of labour income, or phasing out the 10% tax allowance for pensioners.

Improving the efficiency of health spending while strengthening prevention.

The French healthcare system achieves good outcomes. However, efficiency gaps remain as France achieves lower rates of mortality that could be prevented compared to best performing countries, despite higher levels of spending.

Long-lasting savings could be achieved through greater use of generic and biosimilar medicines and through lower administrative costs, notably by improving co-ordination between statutory health insurance and complementary health insurance schemes. A multi-year framework for the national health insurance expenditure target, ONDAM, would improve expenditure predictability.

France also spends too little on prevention, including cancer screening. Increasing well-targeted preventive expenditure could help contain future healthcare costs and improve healthy life expectancy.

Targeting social transfers more closely at those most in need

France achieves substantial redistribution through a high volume of social transfers, but their targeting could be improved. Some family benefits and housing allowances could take greater account of household income, household composition and, where appropriate, wealth.

Raising revenue without undermining growth

Fiscal consolidation is unlikely to be achieved through spending measures alone. However, the contribution from revenue should avoid broad-based increases in taxes on labour and investment.

A priority should be to reduce the least effective tax expenditures. These are economically comparable to direct public spending but are often less transparent and subject to less evaluation. Tax bases could be broadened without increasing statutory rates. This should include by gradually eliminating reduced VAT rates whose economic effectiveness has not been demonstrated, including those applying to restaurants or renovation work, and by removing components of the research and development tax credit (CIR) that benefit large companies but generate limited additional research activity.

Exemptions from social security contributions amount to around EUR 80 billion annually. Their effectiveness is well established for low-paid workers, but less clearly demonstrated for workers on intermediate wages. Better targeting these exemptions could release resources to reduce production taxes and finance training, which have a more direct impact on growth and competitiveness.

The tax system could gradually be rebalanced away from labour and towards broader tax bases. Options include:

• increasing consumption taxation by gradually removing the least effective sector-specific VAT reductions;
• pricing environmental externalities more effectively through more comprehensive emissions pricing, complemented in the longer term by taxation based on road congestion and distance travelled; and
• reforming the taxation of wealth by rationalising the numerous allowances and preferential regimes applying to inheritance and unrealised capital gains.

Restoring the public finances while safeguarding the future

Fiscal consolidation should not lead to cuts in spending for the future. This includes public expenditure that supports sustainable growth, particularly spending on health, innovation, education and the climate transition.

An ambitious multi-year fiscal strategy, supported by systematic spending reviews that identify and protect the most effective programmes, could restore debt sustainability while preserving France’s capacity to finance its long-term priorities and strengthen potential growth.

References:

OECD (2026), OECD Economic Surveys: France 2026, OECD Publishing, Paris, https://doi.org/10.1787/e88a1716-en.