France’s fiscal crisis hits close to home

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France’s fiscal crisis hits close to home

Published: 10 Oct. 2025, 00:03

Audio report: written by reporters, read by AI

Kim Chang-woo

The author is a senior economic reporter at the JoongAng Ilbo.

On Sept. 6, while Koreans were celebrating Chuseok, French Prime Minister Sébastien Lecornu abruptly resigned — just 27 days after taking office. He became the fifth prime minister in two years to step down. His attempt to salvage the wreckage left by his predecessor’s failed fiscal reforms fell short.

The resignation dealt a heavy blow to President Emmanuel Macron’s broader plan to transform the French economy through tax cuts and spending reductions. Macron, who took office in 2017, lowered corporate, income and property taxes. France’s audit office estimated the annual cost of these cuts at 50 billion euros ($54 billion).

This photograph shows a television screen displaying France's outgoing Prime Minister Sebastien Lecornu (R), with an image of France's President Emmanuel Macron in the background, during a live broadcast interview on a set of French TV France 2 in Paris on October 8, 2025. [AFP/YONHAP]

But spending cuts never followed. The government poured 170 billion euros ($197.6 billion) into pandemic response measures and 72 billion euros into subsidies when Russian gas supplies were halted. Last year, France’s fiscal deficit reached 5.8 percent of gross domestic product, while public debt climbed to 113 percent. Austerity measures aimed at reining in those numbers became a political trap — one after another, prime ministers were consumed by the effort.

Comparisons between France’s fiscal crisis and Korea’s own situation spark debate. Korea’s debt-to-GDP ratio stands at 49 percent. Welfare spending is 15.5 percent of GDP, roughly half the French level. Taxes amount to 22 percent of GDP, far below the OECD average of 35.6 percent. If France operates under a high-tax, high-welfare system, Korea runs on a low-tax, low-welfare framework. That has underpinned the Lee Jae Myung administration’s view that there is still room for fiscal expansion. But will that hold in the long run? Once government spending rises, experience in France shows how difficult it is to reduce. In the end, two options remain: raise more revenue or borrow more money.

The government’s first option is taxation. Like austerity, it is unpopular. To soften opposition, officials argue the burden will fall only on a limited group — wealthy individuals and property owners. The Lee administration has said it will not use taxation as a direct tool to control housing prices. Yet, recent comments reveal a more flexible stance. On Sept. 20, Kim Yong-bum, presidential policy chief, said, “If it is necessary for stabilizing the real estate market or for housing welfare, any measure must be considered.” On Sept. 29, Land Minister Kim Yun-duk added that while not speaking in his official capacity, he personally believes property taxes should rise.

Contrary to common belief, Korea’s property taxes are already among the highest in the OECD. According to the National Assembly Budget Office, Korea’s recurrent property tax accounts for 1.2 percent of GDP, similar to the OECD average of 1.1 percent. But once transfer taxes, acquisition taxes and inheritance taxes are included, the burden climbs to 4.5 percent. Adding capital gains tax brings the total to 6.3 percent, three times the OECD average of 2.1 percent. By comparison, the United States levies property tax at roughly 3 percent of GDP.

Income taxes also fall unevenly. Three out of 10 workers pay nothing. The top 1 percent of earners shoulder 42 percent of total income tax revenue. Corporate taxation shows a similar concentration: 65 companies with annual profits exceeding 500 billion won contribute 35.6 percent of all corporate taxes. The Budget Office has warned that while Korea’s system appears steeply progressive, its tax base is narrow. The recommendation is not higher rates but broader taxation. Yet, it is unlikely the government will extend burdens to low-income workers or owners of modest homes.

The other option is debt. Successive Democratic governments have shown eagerness to spend. Under former President Moon Jae-in, national debt rose from 600 trillion won to 1,000 trillion won. President Lee Jae Myung recently justified borrowing with an agricultural metaphor: “If there are no seeds to sow in the spring, it is frustrating to leave the field idle. If borrowing a bushel of seeds allows us to harvest a sack of grain in the fall, then of course we must borrow to plant.”

The Ministry of Economy and Finance projects government debt will rise by 125 trillion won this year and 115 trillion won next year. Projections show the debt-to-GDP ratio climbing to 71 percent in 10 years, 97 percent in 20 years and 156 percent in 40 years.

Protestors light up red smoke flares as they take part in a demonstration in Nantes, western France, on October 2, 2025, as part of a nation-wide day of strike called by France's eight biggest workers unions for ″social justice″ measures. [AFP/YONHAP]

Borrowing may be unavoidable, but the question is whether it is fair to borrow against the future without asking those who will repay. Younger generations face different realities than older Koreans, and their outlook differs. A JoongAng Ilbo poll marking the paper’s 60th anniversary last month asked whether respondents would accept higher taxes to reduce elderly poverty. Sixty percent of those in their 20s and 55 percent of those in their 30s said no. Among men, opposition was even higher — 72 percent of men in their 20s and 58 percent of men in their 30s rejected the idea. Passing debt down with the expectation that younger Koreans will cover repayment is no longer tenable.

As Korea approaches a super-aged society, welfare spending is bound to rise exponentially. On Sept. 8, former French Prime Minister François Bayrou unveiled an austerity budget of 44 billion euros, declaring that spending cuts were essential to prevent a fiscal collapse that would burden future generations. The announcement triggered nationwide protests, and Bayrou ultimately resigned.

France’s fiscal turmoil offers Korea a stark warning. What unfolded in Paris could soon arrive in Seoul.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.