French lawmakers reject income part of budget bill as it heads to Senate

PARIS (Reuters) -The French lower house rejected parts of the 2026 budget bill on Saturday, leaving open whether the politically fragmented parliament, under pressure from investors to reduce a budget deficit, can strike a deal before the end of the year.

After the rejection of the income part of the budget - which deals with taxation - the bill now heads to the Senate, which is expected to strip out many amendments already added by the National Assembly.

Both chambers must agree for the budget to pass without the government resorting to special constitutional powers. Once the Senate completes its review, a joint committee will attempt to broker a compromise.

"We are only halfway through the parliamentary process, and I remain convinced that a compromise can be reached," Finance Minister Roland Lescure said in a statement.

"I remain confident that the majority of parliamentary groups will be able to find the necessary common ground to enable our country to have a budget and to approach 2026 with stability and visibility for our businesses and our fellow citizens."

Budget talks have become increasingly fraught since President Emmanuel Macron lost his majority in last year's snap elections, triggering broad political instability.

A battle over last year's budget triggered a no-confidence vote that brought down Michel Barnier's cabinet.

This year, Prime Minister Sebastien Lecornu has pledged not to invoke special constitutional powers to ram the budget through, giving legislators unprecedented freedom to shape the budget – but also making the outcome highly uncertain.

A crucial factor will be whether the Socialists - a pivotal swing bloc - decide to reject or abstain on the two budget bills under discussion to lock in the suspension of an unpopular pension reform proposed by the government to assuage them.

Under the constitution, if parliament fails to act by early December, the government can impose the budget by decree.

(Reporting by Michel Rose and Sybille de La Hamaide; Editing by Kevin Liffey)