On 15 September 2016, the Government referred to the High Council of public finance its macroeconomic forecasts and information on public finances, on which are based the budget bill and the social security financing bill for the year 2017. After its deliberations, the High Council delivered its opinion on 24 September 2016.
Macroeconomic scenario
Based on the information available, the High Council considers that the Government’s growth forecast of 1.5% for 2016 is slightly high. The HCFP notes that most of the growth forecasts recently published lie below 1.5% for that year.
The Government maintains its April forecast of 1.5% for 2017. Meanwhile, most international governmental organizations and economic research institutes have revised their forecasts downwards (in September: 1.2% according to the “Consensus Forecasts”
and 1.3% according to the OECD).
The High Council regards this growth forecast as optimistic given the downward risks that have materialized over the past few months (sluggish world trade growth, uncertainty from the Brexit vote, political climate in the world and in the European Union, impact of the terrorist attacks on tourism…).
The growth scenario has been built upon a number of favorable assumptions. In this way, it tends to deviate from the principle of prudence which enables better compliance with targets and commitments regarding public finance.
The inflation forecasts for 2016 (0.1%) and 2017 (0.8%) are reasonable.
Regarding employment and private-sector wage bill, the forecasts for 2016 are credible.
For 2017, they are slightly high, which echoes the growth hypotheses.
Public Finance scenario
The consistency of the structural balance path
The structural deficit, structural adjustment and structural effort forecasts are close to the objectives endorsed in the multi-year public finance programming law of 2014. However, the structural deficits for 2016 and 2017 are 0.3 point greater than the targets set in the Stability Program of April 2016. Furthermore, structural adjustments and structural efforts are less than the minima required by European rules.
Moreover, the structural deficit estimates in the Stability Program and in the budget bill are substantially lower than those of international governmental organizations, which downplays the effort to provide in order to achieve structural balance on public finances in the medium term.
Risks to Government revenues and expenditure
The High Council is of the view that risks affecting government spending in 2017 are greater than in previous years: unrealistic nature of the costs savings on unemployment insurance, uncertainty about the achievement of the substantial expected savings on the ONDAM (National Objective of Healthcare Expenditure), uncertainty about the evolution of spending by central and local governments (especially in view of the surge in public wage bill), the possible effects of the recapitalizations of energy public companies on the fiscal
balance…
To this must be added other risks affecting government revenues due to the favorable macroeconomic assumptions.
Therefore, the High Council considers that the reduction of the general government deficit set out in the 2017 budget bill (from -1.1 to -1.6 GDP point for the structural balance, and from -3.3 to -2.7 points for the nominal balance) is unlikely to be attained. Based on available information, the High Council is of the opinion that it is uncertain whether the Government will be able to bring back the nominal budget deficit below 3% of GDP by
2017.
Besides, the High Council points out that replacing tax cuts by tax credits, in order to cover some share of the additional expenditure announced for 2017, leads to the impact of this shortfall on the balance being deferred until 2018. The long-term spending pressures resulting from these additional measures jeopardize the budgetary consolidation path as of 2018.