France has just passed its 2025 Budget, but concentration is already focusing on the 2026 spending programs. Prime Minister François Bayrou addressed a press conference to outline the country’s financial difficulties and the measures needed to deal with them.
France is struggling with a rising budget deficit, exacerbated by the 2024 parliamentary crisis that toppled a prime minister and left the country without budget plans passed at the start of the year.
While the Bayrou administration managed to get a budget through, it didn’t address the serious problem of the country’s failure to balance its accounts. As a result, focus has already shifted towards the 2026 Budget, set for discussion this autumn. One of the proposed ideas includes eliminating the 10 percent tax credit available to French pensioners, effectively increasing taxes for retirees.
What change is being proposed?
Currently, those receiving a French pension enjoy a 10 percent fiscal abatement, which automatically deducts this percentage from their pension income before calculating their income tax.
Consider a couple receiving monthly pensions of €1,800 each. Their total annual pension income amounts to €43,200, but with a 10 percent discount, their taxable income reduces to €38,880. Consequently, their annual income tax would be €1,086 with the deduction and €1,760 without it. Note that this calculation excludes any additional income they may have and does not factor in social charge deductions. The deduction must be at least €450 per person and cannot exceed €4,399 per household.
The 10 percent discount is available to employees as well and serves as a deduction for work-related expenses; currently, there are no intentions to modify this for employees.
Founded in 1977, it started as a one-year initiative aimed at helping retirees mitigate income loss after leaving the workforce. In 1978, Maurice Papon extended it into a permanent program (the same Papon later convicted of war crimes related to the deportation of Jews during World War II, and who served as Paris’s police chief in 1961 during the incident where police killed up to 98 peaceful Algerian protesters).
What impact does this have on foreigners?
The tax deduction is applicable to individuals receiving a French pension. This means it benefits foreigners who worked in France before retiring here; however, it does not apply to those who retired in France without any prior employment in the country. For individuals with a ‘split’ career, where part of their working life was in France and the other part elsewhere, the deduction pertains only to the French portion of their pension.
Foreign retirees in France with pensions from abroad have varying tax arrangements. The specifics depend on the treaty between France and the pension-paying country. Generally, pensions are taxed where they originate, although exceptions exist. For British retirees, it varies based on whether the pension is public or private.
Is this actually going to occur?
This change is largely motivated by France’s financial issues; the government aims to save €40 billion in the 2026 Budget, with abolishing the pensioner tax credit expected to yield savings of about €5 billion.
Discussions among the government are anticipated to commence in July, with parliamentary debates scheduled to start in the autumn. This ‘cost-cutting’ budget is expected to be fiercely contested. Measures that adversely affect pensioners are typically seen as off-limits in French politics, so it is yet unclear whether this proposal will be included in the final bill.
