By making an €18 billion error in its assessments, the French government has put itself in a tricky budgetary situation. This sum represents the difference between the public deficit that had been forecast for 2023 and the harsh reality. On Tuesday, March 26, the national statistics institute (INSEE) dispelled any remaining illusions by publishing the balance of France's public accounts. Expenditures exceeded revenue – which was less abundant than expected – by €154 billion. This deficit, which has risen 22% in one year, amount to 5.5% of GDP, or 0.6 points more than what was anticipated. The head of the Court of Auditors, Pierre Moscovici, was alarmed by this "significant and very, very rare slippage."
After a period of denial, which led to the subject being neglected during the 2022 presidential election campaign, and then a period of indecision marked by condemnable short-sightedness regarding the economic downturn, France can no longer avoid facing the imbalance of its public accounts. The country has come under pressure from its European partners – who are more fiscally virtuous – and from credit rating agencies. The plan for the end of the current presidential term needs to be rewritten. As for the candidates standing for election to that office in 2027, they will find it hard to avoid this problem.
Procrastinating on deficit reduction and believing that growth would be the solution to our fiscal laxity has only resulted in this challenge being even harder to overcome today. To meet the target of a budget deficit of less than 3% of GDP by 2027, the Court of Auditors has estimated that €50 billion of savings and cuts would now have to be made. This effort would be all the more unprecedented in recent history as it would have to be accompanied by essential investments in the environmental transition, education, health and defense, all while tackling a debt burden that will soon be the largest item in the French state's budget. Maintaining the trajectory set just a few months ago has become highly hypothetical.
Taxation leverage
It is now essential to move beyond sterile debates on this issue. While inaction on reducing public spending is no longer an option, radical solutions involving drastic savings are not any more realistic. Acting too quickly, too forcefully, in a context of economic slowdown, would inevitably lead to undermining growth over the coming years.
The debate on taxation is in no better shape: It has been polarized around two extreme positions. On the one hand, the government's categorical refusal to raise taxes. On the other, the temptation to make taxation out to be the alpha and omega of restoring France's public finances. With one of the highest combined tax and mandatory contribution rates in the world, there is little room to maneuver. However, given the current situation, it would be difficult to do without the leverage granted by taxation. This must only be done on two conditions: To act with discernment so as not to jeopardize future revenues, and to distribute the tax burden fairly, so that it has a chance of being accepted. Raising taxes on energy companies' profits has become a more obvious option.
Beyond these sources of budgetary savings and levels of taxation, thought needs to be given to how to improve the quality of public spending and increase its effectiveness in terms of what the community expects from it. Since 2017, public spending has risen by €314 billion, and yet eight out of 10 French people have expressed feeling that public services are deteriorating. Each party must reflect on this paradox and learn from these conclusions.