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AB 2000 studies

Alain Boublil Blog


The France financial accounts

The French government has just published its social security and finance bills for the year 2022. They do not constitute commitments because next year, presidential and National Assembly elections will occur. So the future government will have full discretion to take or to deeply modify the measures which will be adopted. But these texts carry precise data regarding the public finance current situation and its foreseeable short term evolution, under the hypothesis, of course, that we don’t see a new wave of the pandemic.

The budget is presented on the basis of better growth forecasts than what was expected during Spring, for the current exercise, i.e. 6% instead of 5% and a pursuit of the growth in 2022 at the 4% rhythm. So the economy would recover at the end of the year the level observed before the pandemic and starts to catch its backwardness in 2022. The forecast State deficit next year would reach 143 billion, as a diminution compared to 2021 when, after having been initially estimated at 220 billion, it is now evaluated at 197 billion. In 2020, it had reached 178 billion. The deficit reduction is explained both by an amelioration of fiscal receipts, notably the household income taxes which have reached 77 billion in 2021 against 73 billion in 2017, and V.A.T. receipts which would rebound due to the consumption increase and by a less than expected growth of health expenditures.

The Social Security system deficit is forecast for this year at 34.6 billion after a 38.7 billion deficit in 2020.It would be reduced in 2022 to reach 21.6 billion. No return to equilibrium is expected before a long time and the forecasts for 2025 again show a deficit level above 15 billion. The demographic data, the population ageing and the noticed necessity during the pandemic to upgrade the medical people remunerations explain the persistency of an heavy financing need for healthcare insurance and of a structural deficit of the pension system.

So the increase of France public debt level has accelerated. It came from 2350 to 2760 billion euro in two years. It will amount in 2022, according to the calculation rules imposed by the Maastricht Treaty 114% of the GDP against 99% as an average between 2016 and 2019. But this figure is misleading because it is based on the gross debt, so before had been taken away the public financial assets. The net public financial debt is, in reality, equal to 103% of the GDP. The recourse to the financial markets in 2022 will be at the same level than in 2021, i.e. 260 billion because the amount of bonds coming at maturity next year will be lower and the State, as during the previous years, won’t have any difficulties to sale its issues. The interest rate level for the 10 years maturities will remain near zero, which, in reality, is equivalent to negative real rates since the forecasted inflation will be between 1.5 and 2%.

The financial burden, despite the increase of the indebtedness, will not increase and will remain around 38 billion. It was above 42 billion five years ago. In reality it would have continued to fall in 2021 and in 2022 but the State is obliged to reimburse indexed loans to which must be added their indexation bills, i.e. near one billion in 2021 and 3 billion in 2022. To that must be added the cost of the taking of a share of the SNCF debt. To the opposite, the persistence of very low rates allows to reducing that charge each time is reimbursed a bond carrying a high fixed interest rate, sometimes above 3%, and replaced by a new bond with a near zero rate. That substitution has allowed until now to offset and even more the cost of the public debt increase. It remains that the past practice of issuances premiums has attenuated, without any credible explanation, this advantage and the pursuit of indexed bonds issuances at a time when the inflationist risk, even moderate, exists is incomprehensible because these bonds carry an interest rate few different from normal bonds one.

Despite the alarmist speeches regarding the excessive level of the public debt, which is detained, we must recall it, for one quarter by the European Central Bank, so indirectly by the State, and about an eventual interest rate rebound, the France financial situation must not worry especially if it is compared to other countries like the United States, Japan or many European countries. The true problem is elsewhere. The State and the institutions which report to it have a level of expenditures among the highest in developed countries. Are these levels delivering the expected results? There, the answer is far from being satisfying and one of the major stakes of the coming elections will really be to assess this aspect of the current policy and its economic and social consequences compared with alternative proposals.

For more than ten years the successive governments mantra has been to give under different forms charge reductions to enterprises and even taxes called “production taxes”. The objective was to improve enterprises competitiveness. The failure, which can be observed with the evolution of the trade balance, is obvious. The deficit has reached, despite the 2020 recession, 65 billion and the forecast, inscribed in the finance bill, for 2022 evaluates it at 95 billion that year.

In the same way, the permanently paraded objective was to slow public expenditures growth. The burden has then be put on public services with the consequences we can observe now on so essential activities like education and healthcare. During that time, were multiplied local and regional institutions, were piled up political and administrative structures one on each other and were continually created public organisms. The cost of that intrusive bureaucracy is double: it increases the public deficits which the governments had promised to reduce and it weights, permanently, through the production of texts and norms on the operating mode of the enterprises and on the daily life of household in their relations with the administration.

Foreign environment was, until now, favorable and has allowed, thanks to the euro, the ECB action and the support of the governments, the economy to going through, as well as possible, that sanitary challenge. But once these problems are surmounted, it is not guaranteed that the current European consensus about the “whatever it costs” will remain, especially, if, in Germany, comes into power a government less in favor of compromises, especially during the first years of his mandate. France will have to prove that its economic policy and the huge deficits both in its public finances and its foreign trade, will be progressively amended.

Public expenditures management cannot be reduced to regulate its level. Everything depends of what is done with them. Until now, the successive French governments have not brought the proof that both on economic and social issues, these expenditures have brought the expected results. If that had been the case, France would not be confronted with deficits, unemployment and the social discontent it is facing with today.             



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