The High Council of public finance delivers on 20 May 2016 an opinion on the compliance with multi-year targets concerning the structural balance in the budget settlement bill for 2015 (PLR).
The general government balance amounts to €-77,5 billion in 2015, that is -3,6 % of GDP. The structural budget balance represents -1,9 % of GDP, using the potential GDP of the public finance programming law of 29 December 2014, which has to be the reference for the High Council.
The High Council notices that this estimate of the structural deficit in 2015 (1,9 % of GDP) is lower by 0,2 GDP point than the programming law’s target (2,1 % of GDP).
Nevertheless, the High Council observes that the use of the public finance programming law as a sole reference is not sufficient. Actually, the Stability Programmes of April 2015 and April 2016, which took into account the recommendations of the European Commission and of the European Council, reflect better France’s European commitments. With regard to the objectives set in these Stability Programmes, the structural deficit is higher by 0,3 point. This difference comes from the revisions settled on 17 May 2016 for the GDP growth for 2014 and 2015.
The better than expected GDP growth in 2014 and 2015 results in a downwards revision of the output gap (difference between actual GDP and potential GDP). However, the High Council notes that the revised output gap submitted by the Government is still higher than most existing estimates of international organizations. According to the High Council, the output gap seems overestimated, leading to an overestimated cyclical component of the deficit and thus, mechanically, to an underestimation of the structural deficit.
In 2015, the results exemplify, once again, the fact that structural balance estimates are subject to significant variations mostly linked to the revision of GDP estimates in previous years. This variability of the structural budget balance, and its sensitivity to revisions of economic data, argue in favor of an assessment which would also take into account other indicators that could reflect better the budgetary policy, such as the structural effort.
In this regard, the High Council points out that, if the structural effort cumulated over 2014 and 2015 is in line with the structural effort targeted in the programming law (0,9 % of GDP), this effort is lower than projected in the Stability Programmes of April 2015 and April 2016 (a cumulated effort close to 1,5 % of GDP in both Programmes). These differences stem from a stronger reduction of fiscal pressure and from a reduced effort in expenditure because of a lower inflation than anticipated.
Finally, the High Council emphasizes that, with a structural deficit in 2015 wider than in the last Stability Programme (1,9 % of GDP instead of 1,6 %), the effort get back on the trajectory to structural balance of public accounts in the long run will be greater.