The foundations of public finances, what for?

2023-06-16 15:10:00

The government wants to show that it wants to tighten the screw on public spending. Contested on the pension reform, Emmanuel Macron is in a hurry to turn the page of this stormy and agitated spring in the street and the benches of Parliament. The executive has planned to unveil this Monday, June 19 during the public finance meeting the main cuts envisaged in each ministry for the preparation of the 2024 budget. Organized in Bercy under the aegis of the Minister of the Economy Bruno Le Maire and that of the Public Accounts Gabriel Attal, these meetings conclude a cycle of meetings devoted to the annual review of the expenditure announced this winter.

The aim is to achieve the objectives presented in the stability program sent to Brussels in April. Public debt as a percentage of gross domestic product (GDP) is expected to rise from 111.6% to 108.3% between 2022 and 2027 while it anticipated a rise from 111.9% to 112.5% ​​over the same period during the previous stability program presented in the summer of 2022.

The government has certainly already cut social spending through the unemployment insurance reforms of 2021 and 2023 (3.3 billion euros between 2022 and 2025 according to Unédic) and that of pensions with an expected gain of 17 billion euros according to Bercy. But Matignon does not intend to stop there.

Debt and deficit: how the government wants to “cool public spending”

5% cuts to be expected in the ministries

On the program, Prime Minister Elisabeth Borne is to end the morning at Bercy with an intervention in the presence of Ministers Le Maire and Attal. A few weeks earlier, the head of government had sent a framework letter to all ministerial departments asking them for ways to make 5% savings. “In order to redirect the State budget towards this priority [la transition écologique]I ask you to forward to my chief of staff, ahead of the annual budget meetings conducted by the Ministry in charge of Public Accounts, proposals for freeing up financial room for maneuver within your budgets”, added ordered Matignon in a document consulted by the Tribune.

Without providing details, the entourage of the Minister of the Economy simply specified that the avenues envisaged will be revealed during two round tables in the presence of elected officials and institutions. “There are expenses that we want to protect and others that we want to reduce”, just summed up an adviser. The first meeting will be devoted to exiting “whatever the cost” and deleveraging. The president of the Court of Auditors Pierre Moscovici should give his receipts to clean up public finances. During the second round table, the general rapporteur of the Finance Committee and deputy Jean-René Cazeneuve will have to make an intervention on “the quality and relevance of public spending”.

Public finances: the Court of Auditors issues a red card to the government

The breathless economy complicates the budget equation

The closing of the public expenditure tap must take place at a time when the economic context has deteriorated particularly. The burden of French debt has increased in recent months under the impact of the rise in 10-year interest rates. The tightening of the ECB’s monetary policy has considerably reduced borrowing conditions for households and businesses throughout the Old Continent. As a result, the euro zone has entered recession in recent months and French growth should run out of steam in 2023 to 0.6% against 2.5% in 2022, forecasts INSEE. Finally, the announced disinflation should also start a drop in tax receipts in the coffers of the State.

In France, economic growth will run out of steam to 0.6% in 2023 according to INSEE

At the same time, the State will have to inject billions into several sovereign missions such as Defense with the war in Ukraine. The acceleration of global warming will force the tricolor state to finance colossal investment envelopes. In a recent report submitted to Prime Minister Elisabeth Borne, economist Jean Pisani-Ferry quantified public investment needs between 27 and 34 billion euros each year by 2030. And this amount does not take into account the damage of global warming on the environment, health, the economy or agriculture.

Associations of elected officials shun the assizes

A few days before this great rout, several associations of elected officials and communities have decided to shun the government’s invitation. The Association of Mayors of France (AMF) has indicated that it will not participate in this session “because it does not share the unilateral conclusions announced at this stage”. She considers that the “local authority finances have no part in the massive State indebtedness, on the contrary they contribute to its reduction through their surpluses and that the reductions in allocations have produced no improvement since the weight of the debt in GDP keeps growing.

The association also tackled the method. “The consultation was therefore purely formal”. Asked about this boycott, Bruno Le Maire’s advisers acknowledge that there has been “misunderstanding” during pre-meetings. And promise to “don’t close the door”. “We will still have representatives of the regions of France like Renaud Muselier, mayors. We are not in a configuration where there would be a full and complete boycott. We will continue to be part of a spirit of dialogue”, continues Bercy. A reaction that once again risks causing all the intermediate bodies to jump.