The Government referred to the High Council of Public Finance on 8 April 2024, pursuant to Article 62(1) of the amended Organic Law on Budget Laws No. 2001-692 of 1st August 2001, of the introductory article of the draft budget settlement bill for 2023, in order to give its opinion on compliance in 2023 with the multi-year structural balance objectives.
The general government deficit amounts to 154.0 billion euros in 2023, or 5.5 points of GDP. This is 28.2 billion euros and 0.7 points of GDP higher than in 2022, and much worse than the forecasts in the initial Budget Laws for 2023 and 2024 and in the public finance programming Law (LPFP) of 18 December 2023-2027, which estimated the deficit at 4.9 points of GDP. This deterioration increases the divergence of France's public finances from those of our main European partners and reflects a worrying situation.
In its opinion issued on 17 March 2020 on the first Amending Budget Bill for 2020, the High Council of Public Finance noted, at the Government's request, that the health crisis and its economic and financial repercussions constituted unusual events beyond the Government's control and therefore fell within the "exceptional circumstances" referred to in Article 3 of the Treaty on Stability, Coordination and Governance (TSCG).
In accordance with Article 62 of the Organic Law on Budget Laws of 1st August 2001, it took this into account in its opinions on the Budget Settlement Bill for the years 2021 and 2022 and therefore did not trigger the correction mechanism, even though the structural balances recorded for these two years differed by more than 0.5 points of GDP from those forecast in the public finance programming Law for the years 2018 to 2022 in force at the time.
In application of the same provisions, the High Council has now been presented with the general government structural balance presented in the budget settlement bill for 2023.
In this opinion, the High Council notes that economic conditions, which were severely affected in 2020 and 2021 by the health crisis and then by the energy crisis in 2022, have improved significantly in 2023.
Consequently, pursuant to the provisions of II of article 5 of law no. 2023-1195 of 18 December 2023 on public finance programming for the years 2023 to 2027, the High Council hereby notes that the exceptional circumstances identified in 2020 no longer exist and must not be considered in the examination of this bill.
The structural component of the 2023 deficit amounts to 4.6 points of potential GDP, as estimated by the public finance programming Law (LPFP) of 18 December 2023, to which the Haut Conseil des Finances Publiques must refer. The structural balance has deteriorated by 0.5 points of potential GDP between 2022 and 2023.
This deterioration is explained by the sharp fall of tax revenues as a proportion of GDP. Indeed, even though public spending grew in current euros, it fell in volume terms, due in particular to the phasing out of some of the emergency and stimulus measures adopted in the context of Covid-19 and a fall in the interest burden on inflation-indexed bonds as a result of the decline in inflation. However, this structural adjustment on the expenditure side was more than offset by the fall in revenues as a share of GDP, which is itself due much more to a shortfall in compulsory levies than to newly implemented measures.
Under the terms of Article 62(I) of the amended Organic Law No. 2001-692 of 1st August 2001 on Budget Laws, the High Council has to issue an opinion on the difference between the structural balance recorded and that forecast for the same year by the current LPFP. This gap amounts to 0.5 points of potential GDP in 2023. However, it is partly the result of a methodological change linked to the switching of the national accounts to the 2020 base between 2022 and 2023. Adjusted for this rebasing of national accounts, the difference between the structural balance observed in 2023 and that forecast in the LPFP is less than 0.5 points of potential GDP. It is therefore not "significant" within the meaning of II of the aforementioned Article 62. Under these conditions, there is no need to trigger the correction mechanism for 2023.
However, the fact that the correction mechanism has not been triggered should not obscure the fact that the structural deficit is very high and has deteriorated sharply compared to the objectives of the recently enacted LPFP, whose 2023-2027 trajectory was deemed optimistic and fragile by the High Council.
The structural deficit is now a long way from the medium-term objective (MTO) that France set itself in the 2023-2027 Programming Law, i.e. a structural deficit of less than 0.4 points of potential GDP, whose compliance has been put off to a distant future.
Against a backdrop of rising debt charges, the high level of the structural deficit is delaying the necessary reduction in the debt-to-GDP ratio and could hamper France's ability to cope with any economic shocks and to commit to new spending, particularly for the ecological transition. A significant reduction in the deficit requires, as a priority, resolute action on public spending and a reassessment of the planned tax cuts.