Opinion on the general government structural balance presented in the budget settlement bill for 2022

The Government referred to the High Council of Public Finance on 4 April 2023, pursuant to Article 23 of the Organic Law n° 2012-1403 of 17 December 2012 on the programming and governance of public finances, of the introductory article of the draft budget settlement bill for 2022, in order to give its opinion on compliance in 2022 with the multi-year structural balance objectives. 

Opinion's summary

The general government balance accounts for -124.9 billion euros in 2022, or -4.7 percentage points of GDP. Its structural component is estimated at -3.4 percentage points of potential GDP forecast in the Programming Law (LPFP) of 22 January 2018, to which the High Council of Public Finance must refer even though it is an obsolete reference after the pandemic crisis.

The structural balance has improved by one percentage point of potential GDP from 2021 to 2022. This improvement is mainly due to the increase in the compulsory levies, which clearly exceeded the rise in activity, while the expenditure effort was very limited.

The High Council notes that the structural deficit is 2.6 percentage points higher in 2022 than the forecast in the LPFP (0.8 pps. of potential GDP) and 2.9 percentage points on average in 2021 and 2022. These differences are much higher than 0.5 percentage points and must therefore be considered significant in accordance with Article 23 of the Organic Law n° 2012-1403 of 17 December 2012.

The High Council notes, however, that the exceptional circumstances clause mentioned in Article 3 of the Treaty on Stability, Coordination and Governance (TSCG) remained in force in 2022. Consequently, although the gap between the structural balance and that of the LPFP is significant, this must not lead to the triggering of the correction mechanism for 2022.

However, the High Council notes that the economic activity conditions, which were severely constrained in 2020 and 2021 by the health crisis, are being normalised despite the consequences of the war in Ukraine and that the European Commission has announced the deactivation of the general escape clause at the end of 2023.

The High Council therefore invites the Government to promptly specify the conditions for lifting the exceptional circumstances clause in France, as it has already done in its opinion on the budget settlement bill for 2021, as well as its schedule.

The High Council stresses that using the Government's latest assessment of potential GDP, presented in the Economic, Social and Financial Report for 2023, would lead to a deterioration of the structural balance by an additional 0.6 percentage points of potential GDP in 2022 (-4.0 pps. of potential GDP instead of -3.4 pps.). This high level of structural deficit reflects the deterioration of public finances.

A significant reduction in the structural deficit is needed to reduce France's exposure to the risk of debt unsustainability. While new public spending will have to be financed, notably in favour of the energy transition and investments to strengthen growth, and under the sectoral programming laws that have been voted or proposed, this will require resolute action on public spending, the level of which relative to GDP in 2022 remained well above its pre-crisis level, and a re-examination of the planned tax cuts.