Opinion on the revised public finance programming bill for the years 2023 to 2027

On September 15, 2023, the Government referred to the High Council of Public Finance on the changes to the macroeconomic forecasts underlying the public finance programming bill for the years 2023 to 2027.

Opinion's summary

The Government has modified the macroeconomic assumptions of the public finance programming bill, on which the High Council had issued an opinion in September 2022. In accordance with the organic law, the Government has referred to the High Council on these, as well as the associated public finance trajectory.

The estimates of the output gap and the potential growth form the basis of the 2023-2027 macroeconomic scenario. In both cases, they appear optimistic. Despite a slight upward revision compared with the previous draft, the High Council considers that the Government's estimate of the output gap for 2023 (-1.2% instead of -1.4%) remains optimistic. At an annual average of 1.35% over the period, the unchanged figure for potential growth is higher than other available forecasts, and assumes in particular an impact of labour market reforms that the High Council considers to be too strong and too rapid.

The associated growth scenario is also optimistic.

In 2024, the growth forecast (+1.4%), although revised downwards by 0.2 points compared with the project presented in September 2022, is higher than that of the economists' consensus (+0.8%), notably because it assumes that the tightening of credit conditions has already produced most of its effects.

Over the remainder of the programming period, the macroeconomic scenario enabling to reach the expected level of potential GDP by 2027 is based on favourable assumptions, with a continued decline in the household savings rate to support consumption, a persistently high rate of business investment and a positive contribution from foreign trade.

Based on macroeconomic assumptions that the High Council considers to be optimistic, the general government balance path forecasts a gradual decline in the deficit, which would be brought down to 2.7 points of GDP in 2027, a slightly improved level compared with that presented in September 2022, despite the fact that the weight of the interest burden has increased considerably and the rate of compulsory levies remains almost identical to that presented at the time. In addition to the impact of the pension and unemployment insurance reforms, this path assumes the achievement of significant structural savings in expenditure, which the Government indicates can only be specified at the end of the ongoing spending review.

The Government has revised its public finance targets for 2027 compared with the project presented in September 2022, in favour of debt reduction, which the High Council has repeatedly put forward. Nevertheless, the trajectory presented by the Government remains unambitious in terms of France's European commitments. The draft programming law makes no provision for a rapid return to the objective of balanced public finances. Even though growth assumptions remain optimistic, the modest change in debt trajectory exposes France to the risk of further divergence with the rest of the euro zone.

The High Council points out that a return to debt levels that guarantee France sufficient fiscal space is necessary to enable it to cope with future macroeconomic or financial shocks, and with the high public investment needs required in particular by the ecological transition. To ensure the sustainability of public finance, the declared strategy of compulsory levies makes it all the more imperative to control public spending, supported by spending reviews currently underway leading to effective savings.