France’s new government has unveiled its hotly-anticipated budget proposal for 2025 — and it includes measures that founders fear could significantly undermine the growth of startups.
The proposal, which still needs to go through parliamentary amendments and approval, slashes a number of mechanisms that benefit young companies, including tax breaks for those building innovative products and for those recruiting R&D teams.
“The mechanisms of support for innovation within young startups are strongly impacted,” Marianne Tordeux-Bitker, director of public affairs at startup and VC lobby France Digitale, tells Sifted. “The feedback we are getting from the ecosystem is that they are pretty worried.”
With the European Council launching formal action against France last July for breaking the bloc’s budget rules on excessive deficit, the government says it needs to fix the country’s finances.
The budget proposal puts forward measures that the government says will enable a total €60bn in savings and additional resources, to bring the deficit down to 5% by the end of 2025, from 7% in 2024. France Digitale estimates that €3bn of this comes from cost-cutting measures that are likely to impact startups.
What does the budget propose for startups?
One of the key proposals put forward in the text is to slash a measure that exempts early-stage companies from paying mandatory employer contributions on the salaries of technical staff.
The exemption concerns businesses that qualify as “early-stage innovative enterprises” (JEI) — a status they can obtain if they have fewer than 250 employees and spend at least 15% of their budget on R&D. France Digitale says that 49% of startups have JEI status.
JEI companies are exempt from paying employer contributions on the salaries of their R&D employees. These contributions typically represent about 40% of the cost of an employee’s salary to the company; removing the exemption is expected to save the government an €300m.
“Startups are going to have to re-evaluate the cost of employing technical profiles with 40% less budget,” says Tordeux-Bitker. “Plus, these are tech roles — the employees that drive R&D and therefore drive all the other jobs created by startups.”
“The impact on companies’ capacity to innovate could be colossal.”
Paul Midy, a parliamentarian who specialises in digital issues, said on LinkedIn that the move will impact up to 10k SMBs.
“Labour costs will increase significantly for R&D employees, with harmful impacts on employment and on the development of our young startups,” wrote Midy. “This would be a mistake.”
The government’s budget proposal also includes removing an existing 30% tax break for small companies building ‘innovative prototypes and pilots for new products’.
France Digitale estimates that 45% of startups benefit from this tax break, and that it will represent another €300m additional revenue for the government.
France 2030, a €54bn plan launched in 2021 to support innovation, which includes financial support for both startups and larger businesses, has also been affected by budget cuts. This year, €7.3bn will be pumped into the French economy as part of the plan; the budget proposes to bring this down to €5.8bn in 2025.
Unhappy founders
Founders have voiced their concerns about the budget proposal on social media.
“Targeting startups is stupid,” one founder wrote. “The JEI enabled us to hire and have enough time to create and consolidate innovations.”
“We’re running into a wall,” wrote another one.
In a statement, France Digitale said: “Slashing these mechanisms is not ‘rationalising expenses’, it is an abrupt removal of jobs in French startups.”
Xavier Prélat, a French repeat entrepreneur who is currently launching a startup in stealth, tells Sifted that the budget proposal constituted the last push — on top of a smaller market and funding opportunities — to register his company in the US rather than in France.
“The budget proposal impacts every entrepreneur,” says Prélat. “It’s not a positive signal, firstly because it creates uncertainty because of change, and secondly because that change does not go in the right direction.”
“It risks partly killing the dynamic.”
The budget proposal will now be amended in Parliament and the final version will be adopted by the end of December, for implementation from January 2025.
Midy has already pledged to table an amendment against the removal of the exemption of employer contributions for JEI companies.
But there is still a lot of uncertainty for startups planning their budgets for 2025. “We’re talking about salaries from 1 January 2025,” says Tordeux-Bitker. “Startups might have to revise their entire plans for salaries and hiring.”
“It’s more uncertainty for companies in a context that is already difficult.”
