Bruno Le Maire hammers it: the “‘whatever it takes’, it’s over”. The Minister for the Economy, who is organizing the Assises des finances publiques this Monday in Bercy together with the Prime Minister, Elisabeth Borne, and the Delegate Minister for Public Accounts, Gabriel Attal, intends to make this meeting the starting point of her new resume. route focused on accelerating the reduction of France’s debt.
It must be said that after the tens of billions of euros disbursed to protect households and companies during the health crisis and then in the face of inflation in a context of rising interest rates, the State’s financial room for maneuver considerably reduced.
Which didn’t escape Fitch. The US agency gave the first warning in late April by downgrading France’s debt rating from AA to AA-, citing “significant budget deficits” and “modest progress” in reducing it. A few weeks later, competitor S&P Global granted France a reprieve by upholding the “AA” rating but maintaining a negative outlook, a way of saying the country is not immune to a downgrade.
To show its budgetary seriousness, the Executive swears that the time for Covid aid and other compensation for inflation is over. At the same time, in Bercy, brains are boiling to find sources of savings to include in the 2024 budget presented in the fall. Emmanuel Macron excluding any tax increases, it is public spending that is the target. Hence Bruno Le Maire’s promise to start a “public spending review” at the beginning of the year that will refer to “all public spending, without exception: that of the State, but also that of local authorities and the social sphere” . Six months after the start of the works, the minister must detail the planned cuts on Monday.
• What cost reduction goal?
It is not about talking about austerity, simply about a recovery of public accounts. In fact, Bruno Le Maire assures that the review of public spending that will take place every year until 2027 has the sole objective of identifying “ineffective spending” to “save several billions” of euros.
“In the face of the most serious economic crisis since 1929, we have preserved our factories, our businesses, our jobs and our qualifications,” the minister justified at the beginning of June in the Sunday newspaper. “Now is the time to get back to normal. But that doesn’t mean austerity.”
The Government has set quantified objectives: reduce public spending to 53.5% of GDP in 2027, compared to 57.5% in 2022, bring the deficit below 3% at the end of the five-year period and reduce debt to 108, 3% (111.6% today) at the same maturity.
• What is the state of public finances?
With the health crisis and the return of inflation, the State has seen its spending increase strongly in recent years. At €336.1 billion in 2019, the last year before Covid, net general budget spending rose sharply to reach €445.7 billion in 2022, in constant euros. For its part, the public deficit stood at -4.7% last year, below those of 2020 and 2021, but still far from the -3.1% of 2019.
Finally, public debt went from 97.4% of GDP to 111.6% between 2019 and 2022. Although it fell 1.3 points between 2021 and 2022, the effort is much less than that made in most European countries. With nearly 3,000 billion euros in debt, France also has the highest debt level of the countries rated “AA” by rating agencies.
For the government, the restoration of public accounts is all the more urgent since the sharp rise in interest rates in a context of inflation significantly increases the debt burden (all public spending destined to pay interest on its debt ) which could become the main item of State spending in 2027, reaching 71,200 million euros, compared to 41,000 million in 2023.
• What routes are foreseen?
The adjustment variables to save money are limited for the executive. Especially after a painful pension reform and without an absolute majority in the National Assembly. The equation is all the more complicated as new and colossal investment needs are emerging with the energy transition and significant spending on defense, justice or education has already been committed.
However, Bruno Le Maire has outlined some avenues that should make it possible to reduce the aerodynamic profile. The Bercy tenant is counting first on the end of the energy shield, the gains from reforms such as pensions or unemployment insurance, full employment or even an economic growth that he anticipates more dynamic, after a slowdown in 2023.
In an interview with echoes, the minister also prepared the minds, judging in particular the planning of 2 billion euros decided for public support for the real estate sector “ineffective and too expensive”. He also wants to withdraw tax benefits for fossil fuels and evokes a reduction in employment aid or the establishment of a remainder in charge of the personal training account (CPF). Denouncing “the explosion in the number of sick leave”, Gabriel Attal, for his part, cited “daily allocations from Health Insurance” as one of the means of reducing planned expenses.
The executive has also frozen an additional 1% of 2023 budget allocations. Lastly, ministries will also get to work as Elisabeth Borne has asked each of her ministers to identify potential savings of up to 5% of their spent. This would allow, if everyone played, to save around 7 billion euros that would be invested in the ecological transition, according to Bruno Le Maire.
• What to expect?
Will the Conference on Public Finance really be effective? The communities, through the associations of mayors, elected from the departments and regions, have already announced that they will boycott the meeting. “The representatives of the Association of Mayors of France (AMF) expressed their disagreement on the analysis as well as on the consequences” of the situation of the finances of the communities and the framework measures that the Minister of Economy considers necessary, indicates the AMF in a statement press.
And to add: “The AMF considers that the finances of the communities have no part in the massive indebtedness of the State, that on the contrary they contribute to its reduction with their surpluses and that the reductions in endowments do not produce any improvement since the weight of the debt to GDP continues to rise.
For the rest, François Ecalle, a public finance specialist, recalls in BFM Business that there have been “many reviews of public spending” in the past “and that this has not prevented public spending from increasing.” On his Fipeco site, he reviews the history of public spending reviews in France, evoking, for example, “the central committee of inquiry into the cost and performance of public services” in 1946, the “rationalization of budget options” in 1968, the “Rocard circular” of 1989, the “organic law of finance laws” of 2001, the “general review of public policies” of 2007, the “modernization of public action” of 2012… In Overall, “the balance of these spending revisions in terms of savings is disappointing, apart from the job cuts for the years 2007-2012 in state services”, slices François Ecalle.
However, “it doesn’t hurt to talk again from time to time about the effectiveness of public spending,” he believes. But “the review of public spending cannot make budgetary savings possible if this objective is not assumed at the highest political level. However, spending reviews in France have almost always relegated this objective to more consensual, and certainly legitimate, ambitions such as improving the services provided to users and the working conditions of agents.”
Source: BFM TV
