The National Council of Public Finance, chaired by , presented its “Public Finance Assessment” on the on 21 November. It expressed the usual reservations, notably on the long-term sustainability of public finances, and did not make any particular recommendation due to uncertainty about a possible reform of the budgetary governance framework. However, the draft law on Programmation financière pluriannuelle (PLPFP, multiannual financial programming) for the period 2022-2026 is of greater concern to the CNFP.

Lack of anticipation

What is the trajectory for public finances after 2024? Under the “exceptional circumstances” clause, which the government used in 2022 and which continues in 2023, the government is currently not required to respect the medium-term budgetary objective (MTO) set at +0.50% of GDP in 2022 and 0.00% in 2023.

However, according to the macroeconomic and budgetary projections in the PLPFP, public finances would no longer be in line with the current MTO rule in 2024, and the CNFP deplored a lack of foresight on the part of the state: “no gradual adjustment path for the balance is foreseen for the years 2025-2026 in the budgetary documentation.”

On 9 November, the European Commission provided guidance for a future reform of the fiscal governance framework. The CNFP therefore considers it “premature” to provide conclusions on compliance with the fiscal framework. However, it notes a “deterioration of public finances,” as it had already observed in its last assessment in June.

Public debt on borrowed time

The CNFP notes that the public debt has been increasing for several years and is expected to reach 27.7% in 2024 (against 26.3% projected for this year by the European Commission) and 29.5% of GDP in 2026. The council said it was concerned that this development will reduce the budgetary room for manoeuvre in the event of a worsening or new crisis, so that the government’s objective of keeping the debt below 30% of GDP is respected, but with a small margin. It pointed out that in 2027 the debt ratio of 30% of GDP could be exceeded.

, chair of the CNFP, said: “The issue at stake is maintaining the triple A rating. I am not saying that at 29.9% everything would be fine and at 30.1% everything would be bad... But we are observing this indicator, because it is a commitment of the government, and a great consensus between the different political parties, which gives it a meaning. Our economy, which is highly exposed to the vagaries of the economy and dependent on a number of driving but limited economic sectors, would perhaps do well to keep some room for manoeuvre so as not to exceed this threshold.”

Furthermore, in its assessment, the CNFP posed an open question: what is the potential for increasing the state’s resources, particularly fiscal resources, in the event of future economic shocks?

Somewhat optimistic macroeconomic forecasts

The CNFP recalled the instability of geopolitical factors and their possible effects on the economy and public spending in 2023, but especially for the following three years, because the hypothesis adopted by the state was that of “transitory” energy inflation. However, the forecasts could turn out to be “too optimistic if we consider the latest forecasts of the various international institutions,” said the CNFP.

For 2023, it warned of a possible increase in public spending, especially if a third indexation of salaries were to take place, knowing that, in addition, the revenue from household taxes is not aligned with inflation. Concerning the average annual increase in state expenditure (+9.5%), which exceeds the average annual increase in revenue (+6.6%) in 2022-2023, it acknowledged that the negative balance is explained--in part--by the measures taken in favour of households (covid and solidarity-energy packages).

But it considered that these measures could also have an impact on the significant deterioration of the budgetary balances of the PLPFP 2022-2026, because according to the council, some expenditures that are supposed to end in 2023 “appear to be rigidly downward” and even increase in the following years. Furthermore, the CNFP reiterated its usual warning about the deterioration of the level of the social security balance, which it considers “a key factor in the long-term sustainability of public finances.”

Read the original French version of this report on the site