Opinion on the draft budget settlement bill for the year 2024

The year 2024 marked a further slump in public finances. The public deficit continued to widen, reaching 5.8 points of GDP (€169.6 Bn) after 5.4 points of GDP in 2023, while public debt climbed a further 3 points, to reach 113 points of GDP. After a very bad year in 2023, France is thus still not committed to restoring its public finances, while at the European level, an excessive deficit procedure was initiated by the Council in July 2024. 

In 2024, the yield from compulsory levies was very disappointing compared with forecasts. Their growth was limited to +2.4%, which is significantly less than GDP (+3.5% in value), as in 2023, marking a form of normalization after the temporary positive revenue surprises observed in previous years. At the same time, expenditure remained on a sustained trend in 2024 (+3.9%), despite the fall in one-off measures adopted during the health and energy crises. Excluding these measures, public expenditure saw its strongest increase in volume terms in the last ten years. The rise in social benefits, driven in particular by indexations in line with past inflation, accounts for over 60% of the increase in expenditure.

The 2024 public deficit thus exceeds the forecast in the Initial Budget Bill (LFI) by 1.4 point of GDP, a particularly large difference in the absence of a crisis. Yet, notwithstanding the uncertainties affecting any forecasts, this further deterioration was not inevitable. Above all, it reflects the fragility of the budget law's construction and the inadequacy of its feedback mechanisms.

In its opinion on the draft budget law (PLF) 2024, the High Council had warned of the optimistic nature of the deficit forecast and, while it had not anticipated everything (notably the corporate tax surprise), it had highlighted that this forecast combined favorable assumptions. In fact, the discrepancy observed relatively to the PLF mainly reflects a much lower-than-expected yield on compulsory levies, which could partly have been avoided with other assumptions. Secondly, it stems from higher-than-expected expenditure, notably by local authorities and social security administrations. The instruments used to control spending proved to be focused exclusively on the State, which was in fact able to keep its spending in 2024 below the LFI target. The High Council had identified a risk of slippage in the health insurance sector, and repeatedly pointed to the absence of any binding mechanism for local authorities’ expenditure.

The structural component of the deficit, in excess of 5 points of GDP, accounts for the bulk of this. The structural deficit is thus around 1.5 points higher than the one set out in the public finance programming law (PFPL) of December 18, 2023, to which the High Council is obliged to refer despite its obsolete nature. Pursuant to Article 62-II of the amended Organic Law No. 2001-692 of August 1, 2001 on budget laws, the High Council therefore identifies a “significant difference” between the outcome and the multi-year structural balance targets. 

The High Council therefore triggers the correction mechanism set out in III of the same article. As provided for in the Organic Law, it invites the Government to present measures enabling the return to the orientations of the PFPL, or at the very least to present a new programming law in line with the trajectory of the medium-term fiscal-structural plan (MTP) endorsed by the Council in January 2025. Vigorously reducing the structural deficit is imperative: its high level is delaying the necessary reduction in the debt-to-GDP ratio, the cost of which is rising at a worrying rate, and is hampering France's ability to cope with economic shocks and make useful investments, notably in defense and the ecological transition.

Pursuant to article 62-V of the aforementioned Organic Law, the High Council also issues, for the first time, an opinion on the differences between the macroeconomic, revenue and expenditure forecasts in the Budget and Social Security Financing Laws and their outcome. In addition, pursuant to article 4 of Act No. 2021-1577 of December 6, 2021, containing various provisions relating to the High Council of Public Finance and to parliamentary information on public finances, the High Council also examines, for the first time, whether a significant distortion has affected macroeconomic forecasts over a period of at least four consecutive years, in this case the years 2021 to 2024.

Over a twenty-year period (2004-2024), the High Council identifies a positive bias between the Government's growth forecast and actual growth (an average difference of 0.4 point excluding crisis years, higher including them). This difference has narrowed, tough not disappeared, since the creation of the High Council in 2013, as has the difference observed between the Government's forecast and that of the consensus of economists. The forecast bias appears more pronounced for the household consumption forecast. However, the High Council does not identify any long-term bias in the inflation forecast.

For the years 2021-24, the High Council notes that the growth forecast has also tended to exceed actual outcomes. However, this period was marked by the health and energy crises, justifying the maintenance of the exceptional circumstances clause. Given this context, the High Council does not conclude that there was a significant distortion over these four years. Yet, it points out that the high growth forecast for 2024 is one of the factors behind the slippage in public finances last year. Lastly, it stresses that the composition of growth deviated significantly from the forecast in 2023 and 2024, particularly as regards to the household consumption forecast, the optimistic nature of which had been underlined by the High Council.

With regard to public finance forecasts, the High Council points out that, excluding crisis years, the forecast of the expenditure ratio as a share of GDP, as well as that of the revenue ratio as a share of GDP, are slightly lower than their outcome on average over twenty years. On average, excluding crisis years, the Government's forecasts for the public balance in the draft budget bill are therefore close to their outcome (difference of 0.1 points of GDP). Including crisis years, the average difference between forecast and actual balance is 0.6 point of GDP. The difference between the medium-term Government public balance targets set out in the programming laws and their achievement is more pronounced. 

In the absence of a major crisis, the difference between the forecast and actual Government balance observed over the last two years (0.5 points of GDP in 2023 and 1.4 points of GDP in 2024) appears particularly high. In addition, the High Council notes that forecasts of public debt as a share of GDP have been optimistic in relation to their outcome.

In the light of these different findings, the High Council invites the Government and the organic legislator to consider any additional measures that would ensure the absence of bias in the establishment of forecasts. At the very least, the High Council calls for its access to information to be strengthened, and for the deadlines set for it to be extended, as well as for consideration to be given to the effective implementation of a “comply or explain” mechanism, whereby the Government would be required, when the High Council expresses reservations about the forecast and within a timeframe compatible with parliamentary debates, to rectify the forecast or explain why it is not amending it. Extending the Council's mandate to include a broader mission to analyze debt sustainability and monitor compliance with the constitutional objective of balancing the accounts, would help reinforce the credibility of the public finance framework.