France's National Rally (RN) is gradually sketching out a fairly complete fiscal consolidation program. Its recently unveiled "shadow budget," medium-term fiscal plan and fiscal "golden rule" respond to France's steadily worsening fiscal position from three angles: short-term budgeting, medium-term debt and institutional constraints.

According to a report published by Goldman Sachs on October 7, cited by a trading desk, the consolidation effort proposed by RN is not weak. Its "shadow budget" aims to improve the primary fiscal balance by about 2 percentage points within a year, and in the medium term it hopes to achieve a primary fiscal surplus of 1.2% of GDP by 2032. The problem, however, is that the plan's assumptions about economic growth, room for spending cuts and the speed of policy implementation are all relatively optimistic.

A Goldman Sachs model based on polling suggests Le Pen is the clear favorite in next year's French presidential election, and RN is also expected to win a majority in the National Assembly. If that political scenario materializes, RN's fiscal plan would no longer be just a campaign platform, but could directly shape France's fiscal policy and debt trajectory for years to come.

For markets, what truly deserves attention is not whether RN has proposed sufficiently aggressive fiscal consolidation, but whether these adjustments can be delivered as planned. Goldman Sachs expects France's economic growth in 2027 to be only 0.6%, and the public debt ratio in 2032 could reach 125%, clearly deviating from the downward path in RN's plan. The trade-off between fiscal consolidation and economic growth, along with the debt risk if optimistic assumptions fail, will become important variables for French government bonds and eurozone assets.

Shadow budget: bold consolidation, but hard to fully deliver in the short term

RN's "shadow budget" plans to improve France's primary fiscal balance from -2.6% of GDP in 2027 to -0.6%, an adjustment of about 2 percentage points, achieved almost entirely through compressing public spending while keeping the revenue side basically unchanged.

But looking at the timeline, this target faces practical constraints. France's parliamentary election will not come until July next year at the earliest. Even if RN wins a majority, the time available to actually push through the relevant measures is very limited. In addition, based on standard fiscal multiplier estimates, fiscal tightening of this scale could drag down economic growth by about 0.5 to 1 percentage point, and weaker-than-assumed growth would in turn reduce the scale of fiscal improvement.

Another layer of significance in this plan is that it may reveal RN's policy bottom line in budget negotiations. For example, RN advocates fully indexing pensions to inflation, rather than the partial indexation in the government's plan, and that adjustment alone could add fiscal spending equal to about 0.2% of GDP.

As a result, Goldman Sachs expects France's fiscal deficit ratio in 2027 to reach 5.3%, above the government's earlier target of 5.0%, mainly because of weaker growth expectations and upward pressure on some spending items.

Medium-term plan: broader spending cuts, but the debt decline path is too optimistic

RN's medium-term fiscal plan proposes raising the primary fiscal balance to 1.2% of GDP by 2032 and putting the public debt ratio on a downward path.

Goldman Sachs believes this framework is broadly consistent with the judgment that France needs to maintain a primary fiscal surplus of more than 1% of GDP over the long term. But RN's forecast that economic growth will rise to 1.8% from 2028 to 2030 is clearly more optimistic. At the same time, the plan requires the primary fiscal balance to improve by about 1.5 percentage points during that period, without proposing structural reforms of sufficient scale to support it.

The spending-cut measures RN lists are more comprehensive than before, including reducing the size of the civil service, streamlining healthcare spending, cutting housing subsidies and compressing local government outlays. But Goldman Sachs believes the plan may overestimate savings from cutting immigration-related spending, cracking down on tax and welfare fraud, and reducing contributions to EU transfers.

Some measures also face institutional obstacles: certain policies may be limited by France's constitution, while adjustments involving EU transfers cannot be decided by France unilaterally.

Golden rule: stronger fiscal discipline, but the exception mechanism is questionable

The fiscal "golden rule" proposed by Le Pen seeks to lock in the consolidation path at the institutional level: when the debt ratio is above 60%, the government must improve the fiscal balance by 0.5 percentage points each year until the fiscal balance reaches a level 0.5 percentage points above what is needed for debt stabilization.

The rule is intended to be written into the constitution through a referendum, with France's High Council of Public Finance responsible for estimating the fiscal level needed for debt stabilization; parliament could suspend the rule for two consecutive years with a three-fifths majority, after which any further suspension would be decided by referendum.

Goldman Sachs believes placing fiscal rules within the framework of the constitution and an independent fiscal institution would help strengthen fiscal constraints, but the design itself remains controversial. Using the overall fiscal balance rather than the primary fiscal balance as the anchor would increase the pressure for fiscal adjustment when interest costs are rising. At the same time, debt sustainability usually does not require the debt ratio to return strictly to 60%, but instead focuses on whether the medium-term debt ratio can stabilize.

More notably, allowing the exception clause in the fiscal rule to be extended by referendum lacks mature international precedent, which could make it difficult for markets to judge how strong a constraint this rule would actually provide in times of stress.

The key is not the strength of consolidation, but whether it can be delivered

RN's three plans have already formed a relatively complete fiscal framework: compress spending in the short term, achieve a primary fiscal surplus in the medium term, and then strengthen constraints through a constitutional-level fiscal rule. Compared with past fiscal proposals that leaned more heavily on political slogans, this set of plans is more detailed in numbers and broader in policy coverage.

But Goldman Sachs' core doubt is also very clear: RN's fiscal consolidation targets themselves are not incomprehensible. The real problem lies in the growth and spending-cut assumptions on which achieving those targets depends.

If economic growth fails to meet expectations, or if the actual room for savings in areas such as immigration and welfare fraud is smaller than planned, the pace of fiscal improvement could be slower than expected, and the debt ratio would also struggle to decline along RN's path.

Therefore, for the French government bond market, the biggest risk after an RN victory may not come from "not enough fiscal consolidation," but from relatively strong consolidation weighing on short-term growth while medium- and long-term debt reduction fails to materialize. If both happen at the same time, the risk premium on French government bonds could still face upward pressure.