FINANCES AND PUBLIC ACCOUNTS
THE SITUATION
AND OUTLOOK OF
PUBLIC FINANCES
AUDIT
Summary
Juin 2017
FINANCES AND PUBLIC ACCOUNTS
THE SITUATION
AND OUTLOOK OF
PUBLIC FINANCES
AUDIT
Summary
June 2017
2
Summary of the report on the situation and outlook of France’s public finances
g
DISCLAIMER
This summary is intended to help understanding and using the
report prepared by the
Cour des comptes
.
Only the report is legally binding on the
Cour des comptes
.
The responses of the Ministry for the Economy and Finance and
the Ministry of Public Action and Accounts appear after the report.
3
Summary of the report on the situation and outlook of France’s public finances
Contents
Introduction
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
1
A slow deficit-reduction rate from 2012 to 2016, placing
France behind its European partners
7
2
Without tough corrective measure, the deficit will remain
above 3% of GDP in 2017
11
3
Unprecedented savings required to abide by the Stability
Programme in 2018
15
4
Long-term methods for lasting control over public spending . .19
5
Drivers to make public spending more efficient
23
Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5
Summary of the report on the situation and outlook of France’s public finances
Introduction
In a letter dated 22 May 2017, France’s prime minister asked the
Cour des
comptes
to carry out an audit with a view to assessing the current situation of
the country’s public accounts and to shedding light on the related outlook and
risks regarding both the year 2017 and the period from 2018 to 2020 .
The audit review was handed over on 29 June 2017 . It is the focus of the current
report on the situation and outlook of France’s public finances, which is drawn
up each year pursuant to Article 58-3 of France’s organic law on finance acts
(LOLF) .
The
Cour des comptes
firstly examined the public-finance situation of 2016 and
how this changed in relation to previous years, putting it in the context of Europe .
For 2017 and subsequent years, the
Cour des comptes
examined risks affecting
changes
in
revenue
and
spending
planned
as
part
of
France’s
Stability
Programme . The investigation was based on one same set of policies: only measures
decided upon and implemented on 10 May 2017 were taken into account . For
2017 in particular, the
Cour des comptes
sought to determine whether or not
the public-balance target stated in the Stability Programme could be achieved .
Concerning 2018, it looked into risks that could affect the goal of further
reducing the deficit, by 0 .5% of GDP . In addition, the
Cour des comptes
attempted
to identify the main factors that will impact the course that France’s public finances
are set to follow up to 2020 .
The outlook that emerged from the audit has prompted the
Cour des comptes
to
present the means through which public spending can lastingly change course,
both in methods and goals, and to set forth recommendations for improving
governance of public finances .
Lastly, the
Cour des comptes
has put forward a non-prescriptive, non-exhaustive
list of drivers to make public policy more efficient . To this end, it has made use of
work accomplished in recent years .
The data on which the
Cour des comptes
based its appraisal is that which was
available prior to 26 June 2017 .
7
Summary of the report on the situation and outlook of France’s public finances
1
A slow deficit-reduction rate
from 2012 to 2016, placing
France behind its European
partners
A persistently high deficit
and an ever-growing public
debt in 2016
In 2016, the public deficit stood at
3 .4% of GDP, down 0 .2% on 2015,
following a 0 .4% drop in 2015 . Despite
this fall, the general governement deficit
remained high .
In 2016, there was no deficit reduction
at the level of the state and central
public agencies .This as despite savings
automatically
made
in
charges
against revenue paid to the EU,
debt-servicing costs, and expenditure
carried over to 2017 . Only in social
security and local public governement
were balances better, both improving
by 0 .1% of GDP . Notably, local public
governement reduced their spending
in 2016 .
Public debt rose by around €50bn
in 2016 . It now amounts to 96 .3%
of GDP, up 0 .7 points on 2015 . This
higher debt-to-GDP ratio comes from
increased state debt, which, like in
2015, was nevertheless limited by
issue premiums received by
Agence
France
Trésor
(France’s
national
cash-flow and public-debt agency) .
These reached €20 .8bn in 2016 and
€22 .7bn in 2015, nearly 1% of GDP .
The
balance
and
debt
of
public
governement improved to a lesser
extent
in
France
than
it
did
in
other European countries . With an
improvement of 0 .2% of GDP in 2016,
France did not reduce its deficit as
much as EU countries did collectively
(- 0 .7%), nor as much as the eurozone
did
(-0 .6%) .
France
now
has
the
second-highest
deficit
among
EU
member states, behind only Spain (4 .5%
of GDP) . Moreover, France and Spain
are the only two countries whose
deficit still falls short of 3% of GDP, the
ceiling set by the Maastricht Treaty .
Public balances in 2015 and 2016 in
Europe (as % of GDP)
Source:
Cour des comptes
, based on Eurostat
data on national accounts
-2.4
-2.1
0.7
-5.1
-3.6
-2.7
-2.1
-4.3
- 6
- 5
- 4
- 3
- 2
- 1
0
1
2
EU
France
Italy
Netherlands
United Kingdom
2015
2016
As % of GDP
Eurozone
Germany
Spain
-1.7
-1.5
0.8
-4.5
-3.4
-2.4
0.4
-3.0
8
Summary of the report on the situation and outlook of France’s public finances
Although public debt grew by 0 .7% of
GDP in 2016 in France, it actually fell
in most European countries (by 1 .1%
in the eurozone and 1 .4% in the EU as
a whole) .
Between 2011 and 2016, France
did not perform as well as other
European countries
France’s public deficit fell at an average
yearly rate of 0 .3% of GDP from 2011
to 2016, slower than the EU average,
even though the country began in a
worse situation .
Sluggish
economic
growth
partly
explains why this adjustment was
so slow . According to the European
Commission’s appraisal in May 2017,
France’s cyclical budget balance has
worsened at an average annual rate of
0 .1% of GDP over the past five years,
while the same indicator for the EU
has remained stable .
This slow speed can also be explained
by an improved structural balance
1
,
up 0 .4% of GDP per year on average,
A slow deficit-reduction rate from 2012 to 2016,
placing France behind its European partners
weaker than that of France’s eurozone
partners, despite the French situation
having been worse in 2011 . Estimated
by the European Commission to be at
2 .5% of GDP in 2016, France’s structural
deficit is twice as high as that of its EU
partners (1 .1% of GDP) .
Actual and structural public deficits in
France and the EU from 2011 to 2016
(as % of GDP)
Source
:
Eurostat and AMECO (Commission’s
spring forecasts)
By persistently lagging behind its
partners in balancing its public
finances, France is on a par with
Portugal as the European country that
has, since 2002, spent the most number
of years with an excessive deficit .
- 6
- 5
- 4
- 3
- 2
- 1
0
2011
2012
2013
2014
2015
2016
Public deficit of the European Union
Public deficit of France
Structural deficit of the European Union
Structural deficit of France
as % of GDP
1
The structural balance is the component of the actual balance that does not result from any
impact of exceptional or cyclical situations .
9
Summary of the report on the situation and outlook of France’s public finances
A slow deficit-reduction rate from 2012 to 2016,
placing France behind its European partners
As a result of high deficits posted over
this period, France’s public debt has
not stopped growing: in 2016 it was
32% higher than in 2007 and 11%
greater than in 2011 . Since 2010, the
country’s public debt has pursued a
different path to that of Germany:
this disparity has now reached almost
30% of GDP . Regarding the eurozone,
the discrepancy is more recent (2014)
yet likewise growing and is now close
to 7% of GDP .
Public debt in France, Germany, and
the eurozone (as % of GDP)
Source
:
Cour des comptes
, based on Eurostat
data
Over the 2012-16 period taken as a
whole, France’s structural efforts almost
exclusively concerned revenue . However,
two distinct periods can be singled out .
Until 2013, attempts to reduce the deficit
were essentially made by raising tax
revenue . From 2014 onwards, and
especially in 2016, measures curtailing
tax revenue prevailed while efforts
in public spending drove down the
structural deficit .
In recent years, public spending in
volume terms – excluding tax credits –
grew at a rate of 0 .9%, down markedly
from the 2000s when this rate stood
at 2 .3% .
Spending was largely curbed by factors
beyond public measures: from 2012 to
2016, lower rates prompted a €11 .6bn
(22%) reduction in interest expenditure,
despite a ballooning debt . Reduced
investment from local authorities
also reined in public spending by
0 .2% . This drop was sharpened by the
state’s decision to cut back on local
grants, yet weaker investment from
local
authorities
mainly
reflected
the municipal electoral cycle . Excluding
interest expenditure and local investment,
spending grew by 1 .4% in volume terms .
Average change in
public expenditures
in volume terms between 2012 and 2016
0.0%
0.5%
1.0%
1.5%
As %
...excluding
tax credits
0.9%
...excluding tax credits
and interest expenditure
d'intérêts
1.2%
...excluding tax credits,
interest expenditure, and
local investment
1.4%
Source:
Cour des comptes
, based on data
from INSEE (France’s national institute of
statistics and economic studies)
50
60
70
80
90
100
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Germany
France
Eurozone (19 countries)
As % of GDP
10
Summary of the report on the situation and outlook of France’s public finances
Changes in public spending in volume
terms (base=100 in 2011)
85
90
95
100
105
110
115
2011
2012
2013
2014
2015
2016
France
Eurozone
(19 countries)
Germany
Spain
Italy
Netherlands
United Kingdom
Base=100 in 2011
Source:
Cour des comptes
, based on Eurostat
data
Despite rising at a more tempered
rate in recent years, public spending
in France grew more strikingly than
in neighbouring countries over the
2011-16 period . Only Germany hiked
up its spending more than France did,
although this evolution was fostered
by
the country’s stronger economic
growth and the budget surpluses that
it has run since 2012 . On the other
hand, Italy, Spain, the Netherlands, and
the United Kingdom increased spending
at far lower rate than France did .
A slow deficit-reduction rate from 2012 to 2016,
placing France behind its European partners
11
Summary of the report on the situation and outlook of France’s public finances
According to the Stability Programme
that France presented to the European
Commission in April 2017, the country’s
public deficit should fall more sharply
than in previous years: by 0 .6% of GDP in
2017, to reach 2 .8% of GDP . The
Cour des
comptes
sought to determine whether
or not this target could be reached .
Risk of reaching a public deficit
that falls short of the target by
0.4% of GDP
Given the latest available data, the
Stability Programme’s macroeconomic
assumptions (notably the forecasted
economic growth rate, public-sector
wage bill, and rate of inflation) do
not need to be called into question .
However, the expected level of revenue
seems exaggerated and spending has
clearly been underestimated .
The estimated natural change in tax
revenue is a reasonable premise, based
on current legislation . Nonetheless,
regarding other sources of revenue,
forecasts seem overstated: revenue
expected to made from the effect of
new measures, from litigation, and via
the state department for processing
corrective tax declarations for offshore
assets (STDR) should be revised
downwards by €1 .0bn in relation to
the Stability Programme . Forecasted
non-tax revenue also appears overes-
timated by a little more than €1 .0bn .
The overall estimate for public, tax,
and non-tax revenue is therefore
overvalued by around €2bn .
Effect of new measures, corrective tax
declarations for offshore assets, and
litigation (in billions of euros)
Stability
Programme
2017
Assessment
by the Cour
des comptes
New
measures
0 .5
0 .5
Corrective tax
declarations
for offshore
assets
-0 .2
-1 .1
Litigation
-0 .1
-0 .1
Total
0.2
-0.7
Source:
Cour des comptes
, based on
data from France’s Stability Programme
Public spending is certainly understat-
ed, especially at state level . General
state-budget spending planned as
part of France’s initial finance act (LFI)
for 2017 rose by €8 .0bn in relation to
implementation in 2016 and by €6 .6bn
versus the initial finance act for 2016 .
Despite this, there is still a risk that
Without tough corrective
measure, the deficit will
remain above 3% of GDP
in 2017
2
12
Summary of the report on the situation and outlook of France’s public finances
Without tough corrective measure, the deficit
will remain above 3% of GDP in 2017
overspending will reach €5 .6bn (within
a range of €4 .6 to €6 .6bn) . With regard
to the Stability Programme, which
lowered the state-spending benchmark
by €1 .7bn, overspending could reach
€7 .3bn as an average estimate within a
range from €6 .3bn to €8 .3bn .
These risks
chiefly
concern four
general-budget categories:
Agriculture,
food, forestry, and rural affairs
(curtailed
EU paybacks, compensation for social-
security exemptions, health crises, etc .),
Work and employment
(training courses,
state-subsidised jobs, etc .),
Defence
(domestic and overseas operations),
and
Solidarity, social insertion, and
equal opportunities
(adult-disability
benefits, employment premiums, etc .) .
On the other hand, savings amounting
to €1 .2bn in total could be made with
respect to the Stability Programme, in
taxes transformed to the EU and in
interest expenditure . Furthermore, like
every year, credit redistribution without
interest being carried over to following
years could offset overspending to a
certain extent, the assumption being
that they would total €2 .5bn, as in
2016 .
Still, the planned recapitalisation
of Areva plus compensation paid
to minority shareholders will total
€2 .3bn (0 .1% of GDP), weighing on
the global governement balance by
the same amount .
All told, there is net risk of state-budget
spending
exceeding
the
Stability
Programme by €5 .9bn .
Estimated state-budget overspending in
relation to the Stability Programme of
April 2017 (in billions of euros)
- 1.2
- 2.5
3.6
5.9
Potential savings
made on charges
against revenue
paid to the EU
and interest
expenditure
Cancellations
possible for
outstanding
amounts
(mid-range
estimate)
Recapitalisation
of Areva
Overspending
from
ministries
Estimated
overspending in relation
to the state-spending
benchmark
Total
overspending
in state
expenditure
in €bn
7.3
+2.3
Source
:
Cour des comptes
In other sectors of general governement,
the risks of overspending seem lower .
For social-security agencies, the national
target in health-insurance spending
(ONDAM) should be respected, yet
spending in pensions is undervalued
by about €0 .5bn . Forecasted spending
on local authorities appears tenable,
although is shrouded in uncertainty at
this stage of the year .
Based on information that it has gath-
ered, the
Cour des comptes
believes that
France’s public deficit could be greater
than the Stability Programme’s forecast
by around 0 .4% of GDP . It therefore
estimates that the deficit will stand at
about 3 .2% of GDP .
13
Summary of the report on the situation and outlook of France’s public finances
Estimated public deficit in 2017 (as % of GDP)
GDP
of
-2.8%
Tax (0.5)
and non-tax
(0.5) revenue
Pension
spending
State
spending
Areva
recapitalisation
- 0.1
- 0.2
- 0.1
-3.2%
of
GDP
as %
of GDP
Rectifications in revenue
Rectifications in spending
Stability Programme presented
in April 2017
Estimate based on unchanged policy
in June 2017
- 0.03
Source
:
Cour des comptes
The
Cour des comptes
has observed
that the risk of the deficit worsening in
2017 is similar the risk revealed by the
2012 public-finance audit . Nevertheless,
the causes are considerably different . In
2012, the discrepancy was due to the
country’s estimated rate of economic
growth having been revised downwards
and its revenue from certain taxes
having been overvalued . In 2017,
the disparity comes almost exclusively
from state spending being underesti-
mated, despite public authorities having
the power to actively and immediately
change the current trend in spending .
Tough corrective measures
should be taken quickly
Rigorous measures need to be taken
right from the second half of 2017 to
curb the risk of France’s deficit running
out of control, a peril brought to light
by the
Cour des comptes
To this end,
certain credit allowances should be
cancelled so as to finance programmes
that are clearly underfunded .
In addition to keeping the country
firmly on the course set by the its initial
finance act and Stability Programme, a
deficit brought down to under 3% of
GDP would take France out of the
excessive deficit procedure in 2018 .
However, to achieve this, additional
measures are absolutely vital . At this
stage of the year, such a change of
course can only be accomplished by
deferring or cancelling plans that
push up public spending but have
not yet been implemented and by
applying
measures
that
produce
savings throughout the country’s
general governement .
Bias skewed the sincerity
behind initial finance act
and stability Programme
The analysis from the
Cour des comptes
revealed that bias considerably skewed
the sincerity behind France’s initial
finance act and its Stability Programme
presented in April 2017 .
Without tough corrective measure, the deficit
will remain above 3% of GDP in 2017
14
Summary of the report on the situation and outlook of France’s public finances
Without tough corrective measure, the deficit
will remain above 3% of GDP in 2017
Concerning
spending
forecasted
by the initial finance act, the risk
of
overspending from
ministries,
estimated at €5 .6bn, is chiefly due
to inadequate budgeting (€4 .2bn) .
By way of comparison, unforeseen
events since the start of 2017 make up
only €0 .4bn of estimated overspending .
Categorical breakdown of spending risks
at variance with France’s 2017 initial
finance act (in billions of euros)
Source
:
Cour des comptes
By
tightening
the
state-spending
benchmark by €1 .7bn while failing to
put forward new measures to produce
savings,
the
Stability
Programme
presented in April 2017 effectively
increased the risks of overspending .
Investigations carried out by the
Cour
des comptes
upon the prime minister’s
request revealed that what it observed
was largely known to the Economy
ministry, and therefore to the govern-
ment, from autumn 2016, and known
to them in even more detail last April .
It is therefore clear that the financial
texts submitted for approval from the
national parliament (draft finance act
for 2017) and for inspection by EU
authorities
(Stability
Programme)
sorely lacked sincerity .
Improvement is needed in guaran-
teeing that sincerity underlies draft
finance acts addressed to the national
parliament and in Stability Programmes
submitted to the European Commis-
sion and Council . The organic law of
17 December 2012 helped ensure
sincerity in macroeconomic forecast-
ing for financial laws and the Stability
Programme by placing such estimates
under the control of France’s High
Council of Public Finance (HCPF) .
Conversely, no similar arrangement
currently guarantees the sincerity of
forecasts in public finance prior to their
approval by the country’s national
parliament or examination by the
European Commission .
When future financial laws are drawn
up, a clean break should be made from
repeated
under-budgeting,
which
compromises sincerity behind financial
laws, prompts a carry-over of expend-
iture and widely freezes credit, which
in turn clouds managers’ foresight and
reduces the sense of responsibility they
should have .
Under-budgeting
Carry-over of expenditure
Unforeseen events since
the start of 2017
New spending decided upon
€4.2bn
€0.9bn
€0.
4bn
€0.1bn
15
Summary of the report on the situation and outlook of France’s public finances
Regarding 2018, the
Cour des comptes
looked into the effect of decisions
already made and the risks that
could determine whether or not the
Stability Programme’s aim of reducing
the deficit by 0 .5% of GDP can be
achieved . The
Cour des comptes
has
identified several factors that will
impact how financial laws are drawn
up between now and 2020 . These
include
macroeconomic
changes,
natural trends in certain spending,
notably social expenditure, and a
gradual increase in major infrastructure
developments .
In 2018, stabilised public-spending
in volume terms is required to cut
the deficit by 0.5% of GDP
The Stability Programme forecasts a
deficit of 2 .3% of GDP in 2018, a 0 .5%
improvement on 2017 . With regard to
tax revenue, this forecast takes into
account measures already decided
upon (notably at end-2016), set to
reduce tax revenue by €6 .1bn overall in
relation to its natural growth .
The deficit-reduction course drawn
up for 2018 is biased both in terms
of actual deficit (2 .3% of GDP) and
in terms of reducing by 0 .5% of GDP
the deficit expected in 2017 . A rather
overstated expansion in public revenue
underpins the Stability Programme
(tax and non-tax revenue generated
by corrective declarations of offshore
assets) . More importantly, the pro-
gramme underestimates the effort in
public spending required to bring down
the deficit by 0 .5% of GDP, wrongly
stating that it will match the average
effort made in recent years .
Based on the Stability Programme’s
macroeconomic scenario and on a
more realistic estimate of revenue,
public expenditures would have to
stabilise for the deficit to be curtailed
by 0 .5% of GDP . Yet They actually
rose by 0 .9% on average between
2011 and 2016 .
If the 2011-16 level of effort made in
spending continues unchanged, the
deficit in 2018 would not be pushed
down but simply remain at the same
point reached in 2017 .
Unprecedented savings
required to abide by
the Stability Programme
in 2018
3
16
Summary of the report on the situation and outlook of France’s public finances
Growth rate in spending (as a %) required to reach a given target in public-deficit
reduction (as % of GDP)
Source
:
Cour des comptes
The budgetary-equation challenge for
2018 will be further compounded by
several factors set to drive up spending:
a rise expected in taxes transfered to
the EU; expanded undertakings from
the state in terms of the public-sector
wage bill (recruitment, a state scheme
for better recognising public-sector
career
advancement
and
related
pay, etc .) and other state spending
(counter-terrorism,
investment
in
infrastructure and transport, support
for renewable energy, etc .); the natural
growth in health-insurance spending
and pensions; and a new climb in local-
investment spending related to the
municipal electoral cycle . Moreover,
interest expenditure is likely to contribute
to the public-spending slowdown less
extensively than before .
Risk factors already pinpointed
on the path to 2020
The Stability Programme estimates
that the public deficit will continue to
fall between now and 2020, dropping
from 2 .3% of GDP in 2018 to 1 .6% in
2019, then 1 .3% in 2020 . This course
seems highly ambitious given the risks
already pointed out .
Firstly, the Stability Programme’s
assumption that economic growth
will speed up is based on an output
gap of -3% of GDP in 2016 in its
medium-term forecasts, well above
that estimated by the European
Commission (-1 .3%) .
Unprecedented savings required to abide by
the Stability Programme in 2018
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
... at the rate
of change in
volume terms
from 2011 to 2016
Rate of
growth
in spending
(as % of GDP)
Rate of growth in spending ...
... to reach
the Stability
Programme’s
target
... to reach
the European Council’s
recommended
level
...in value terms
…in volume terms
Reduction in public deficit
(as % of GDP)
17
Summary of the report on the situation and outlook of France’s public finances
Furthermore,
the
deficit-reduction
course set for after 2017, measured
as a percentage of GDP, is not at all
certain . The continually ballooning
debt could prompt a hike in rates .
This would result in higher interest
expenditure . For example, a rise in
all interest rates by 100 basis points
from 2018 would push up interest
expenditure by around 0 .2% of GDP
as of that year and by over 0 .3% in
2020 .
How a rate rise of 100 basis points
would impact public interest expenditure
(as % of GDP)
0.16
0.27
0.35
0.42
0.48
0.52
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2018 2019 2020 2021 2022 2023
2025 2026 2027
As % of GDP
2024
0.57
0.60
0.65
0.69
Source:
Cour des comptes
, based on France’s
national accounts and Stability Programme
In addition, many risks weigh upon
revenue and public spending .
In certain categories, spending is likely
to remain robust, notably in defence
and
major
transport-infrastructure
projects . Revenue paid to the EU
should increase, as is generally the
case in the final years of multiannual
financial frameworks . Given the dif-
ficult financial situation in which
some state-owned companies find
themselves, the amount of dividends
received by the state should remain low
in coming years and new state-funding
requirements could emerge in the
foreseeable future . Lastly, new cases
of tax-related litigation are likely to
prompt considerable state-spending .
Unprecedented savings required to abide by
the Stability Programme in 2018
19
Summary of the report on the situation and outlook of France’s public finances
In France, the level of public spending
is especially high in relation to that
of other European countries . To date,
efforts to bring spending under control
have been weak . New measures are
required, following the example of
those successfully taken by many
other countries . These should overhaul
the way in which public finance is
governed, bolster the coherence and
reach of different financial texts,
and set an overall goal for public
spending that fully incorporates all
agencies concerned .
High public spending, inadequate
results
Public spending totalled €1,257bn in
2016, exceeding the amount spent
in 2006 by around 30% . This change
represents an average annual growth
rate of 2 .5% in value terms and 1 .4%
in volume terms .
Change in public spending as a share of
France’s GDP (as % of GDP)
Source: INSEE (France’s national institute for
statistics and economic studies)
Since 1982, public spending expressed
in terms of GDP has grown by more
than 7% . It rose from 49 .9% of GDP in
1982 to 57 .3% in 2014, before falling to
57% in 2015, and then down to 56 .2%
in 2016 . Only brief spells of strong
GDP growth have tempered this rise in
spending .
Comparisons with other European
countries should be made cautiously,
yet they highlight two points in which
France stand outs:
- A level of public spending higher
than that of virtually all its Euro-
pean partners: 56 .2% of GDP in
2016, versus 46 .6% in the EU as a
whole and 47 .7% in the eurozone .
France’s level of spending is 12%
above that of Germany and 14%
greater than that of the United
Kingdom .
- A rate of growth in public spending
that has not changed course: most
EU member states and eurozone
countries have markedly reduced
public spending as a share of their
GDP since the financial crisis,
whereas France and Italy have
failed to follow this trend .
Long-term methods for lasting
control over public spending
4
44
46
48
50
52
54
56
58
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
20
Summary of the report on the situation and outlook of France’s public finances
Long-term methods for lasting control over
public spending
Public spending in France and Europe
(as % of GDP)
Source:
Cour des comptes
calculations, Eurostat
data. 2014 data for EU-28 and eurozone.
Moreover, many studies and assessments
conducted by the
Cour des comptes
, by
research institutes, and by international
organisations show that France’s high
level of public spending has not neces-
sarily given rise to results worthy of it .
This is the case in housing, employment,
and education, for example .
Long-term effort required in
public spending
Over the past ten years, measures have
been taken to curb public spending
and improve its efficiency . These have
included a comprehensive review of
public policy, a process for modernis-
ing public action, and inspections of
expenditure . Nevertheless, the absence
of any long-term drive in this field,
including sufficiently stable methods
that are regularly assessed, has led to
unsatisfactory results .
Several principles to guide transforma-
tional, modernising policies are required
to ensure efficiency in public spending .
Measures should: enjoy lasting political
support at the highest level of the
state, including the main ministries;
apply to a wide scope, seeking to
make both efficiency savings (doing
the same but with fewer resources)
and structural savings (revising the
reach and aims of public policy); and
be incorporated into the budgeting
process and determine multiannual
objectives in changes in spending as
part of public-finance planning acts .
Governance of public finance
should be more coherent and
efficient
Nearly five years have passed since
the Treaty on Stability, Coordination
and Governance in the Economic and
Monetary Union entered into force .
Yet the
Cour des comptes
considers
that there is room for improvement in
how France governs public finance:
- The scope of financial texts should
be widened and their coherence
strengthened . France’s public-finance
planning acts (LPFP) determine the
objective for medium-term structural
balance and set a course for achieving
it . However, in practice their scope is
limited and their targets quickly aban-
doned .
The
Stability
Programmes
that present France’s undertakings
to the EU (and which, for that reason,
should be subject to parliamentary
0
10
20
30
40
50
60
2006
2010
2016
Eurozone
France
Italy
Netherlands
Germany
Spain
United Kingdom
Sweden
EU-28
21
Summary of the report on the situation and outlook of France’s public finances
Long-term methods for lasting control over
public spending
debate), can also contravene them .
The reach of yearly finance acts
could be extended to a new act on
inancing local authorities and to
a new act on financing compul-
sory social protection (broaden-
ing the scope of acts on financing
social security to the compulsory
complementary-pension schemes
and to the unemployment-benefits
scheme) .
- The structural-balance goal should
be complemented with a spending
target that concerns all expenditures
among general governement in
value terms . Such an objective
would be determined by the public-
finance planning act, then stated in
the introductory articles of finan-
cial acts (finance acts, the social-
security financing act, and, if need
be, the act on financing local
authorities) . Progress made in
achieving this objective should
then be assessed in the introductory
articles of the budget-review acts .
To
involve
all
public-spending
stakeholders, there should be on-
going dialogue between the state
and directors of public agencies
(local authorities, social-protection
authorities administrations, etc .)
so as to share all aspects of the
diagnosis on the situation of
France’s public finance and the
path to be taken, and to discuss how
each party will actively ensure that
this course is followed .
23
Summary of the report on the situation and outlook of France’s public finances
5
Drivers to make public spending
more efficient
Through its various investigations,
the
Cour des comptes
has identified
ways in which public policies could be
made less costly and more efficient .
When applied to all public agencies,
some of these drivers would make
efficiency savings by changing the way
in which a given service is provided
or by modifying the way in which a
certain policy is implemented, without
altering the nature or scope of that
service or policy . Other drivers seek-
ing structural savings would revise or
reorientate certain inefficient policies .
General measures affecting
all public agencies
Several
drivers
could
curb
the
public-agency wage bill
(€284bn in
2016) . By freezing the index-point
increase in public-sector pay, the
wage bill could be reined in . Yet
keeping it at the same rate could
create an imbalance in relation to
the private sector and generate
additional costs due to the guarantee
of individual purchasing power and
minimum wage . Certain adjustments
could nonetheless limit the cost of
the index-point increase: it could
be replaced by a fixed points-awarding
system; it could be applied only to
index-related pay and not to bonuses;
the index-point scale could be dissoci-
ated from the three major civil-service
sectors and adapted to the particular
contexts of each one .
Other drivers could also be used to
control the public-sector wage bill .
Hundreds of types of compensation
that no longer appear justifiable could
be revised; career advancement could
be restructured, compensated in nego-
tiations by extra pay granted as part of
the state scheme for better recognising
public-sector
career
advancement
and related pay; the reduction in the
number of civil servants could be
pursued further; and actual working
hours in the public sector, currently
lower than in the private sector, could be
increased .
Drivers for curbing the public-sector wage bill
in €bn
Estimated
savings
Controlling wage change from
seniority and higher-level skills
Index-point increase freeze
2 .0
Increment freeze
3 .0
Drivers in terms of personnel
Non-replacement of: 1 in 2 public-
sector workers (state civil servants)
0 .6
Non-replacement of: 1 in 3 public-
sector workers (public hospital-
workers; regional civil servants)
1 .8
Drivers in terms of working hours
Increasing working hours by 1%
0 .9
Fighting
absenteeism
(through
unpaid sick leave)
0 .4
Ending unjustified advantages
related to salary
Ending family-related allowances
1 .5
Ending residency-related compensation
0 .9
Ending overseas-territory extra pay
and compensation
2 .2
Ending overpaid part-time work
0 .8
Source: Cour des comptes
24
Summary of the report on the situation and outlook of France’s public finances
Drivers to make public spending more efficient
Another driver to improve public-spend-
ing efficiency would involve
modernising
how public agencies are managed
Administration could be simplified
to offset the burden of regulatory
standards for both businesses and
local authorities . Digital administration
could also be developed more, regional
public-administration networks could
continue to grow closer together, state
property could be managed more
dynamically, and purchasing procedures
could be further streamlined .
Greater efficiency can also be achieved
in
tax subsidies
The latter has been
repeatedly criticised by the
Cour des
comptes
for its lack of targeting and
assessment despite its total costs
reaching around €86bn in 2016
(€73bn excluding the tax credit for
competitiveness and employment) .
Assessment of the scheme is especially
urgent insofar that certain tax subsidies
have had the opposite effect of that
intended and barely help achieve
the objectives set .
Cost and number of tax subsidies in €bn
(2012-17)
2012
2013
2014
2015
2016
2017
72 .2
72 .1
78 .5
85 .1
85 .8
89 .9
491
464
460
453
449
451
Source: Initial finance act
Furthermore, while public investment
has reached €99bn, the
Cour des comptes
has pointed out, in various investigations,
that prior assessment of their economic
relevance was inadequate . More relevant
investment decisions could be made by
strengthening the role of France’s
general commission for investment
(CGI), by systematically publishing
the commission’s recommendations,
and through increased attention paid
by the government to the content of
these recommendations .
Lastly, another key driver for improved
efficiency would be
controlled local
spending
To achieve this, the tasks of
the different levels of local authorities
should be clarified to avoid duplicating
actions and reduce administrative
complexity, and financial transfers
to local municipalities should remain
controlled .
Major public policies should be
more efficient
Without conducting exhaustive research,
the
Cour des comptes
sought to make use
of recent studies to promote certain
drivers for improving the efficiency of
some major public policies that repre-
sent the main discrepancies in spending
between France and the eurozone .
Disparity in public spending between
France and eurozone countries
(as % of GDP, in 2015)
Source:
Cour des comptes
, based on Eurostat
data in COFOG format, 2015
57
1.5
0.5
0.5
0.5
0.3
0.8
1.1
2.8
48.5
40
42
44
46
48
50
52
54
56
58
60
- 0.1
- 0.2
- 0.3
1.0
Eurozone
General services
Higher education
Justice
Pensions
Healthcare
Families
Unemployment
Other social protection
Education (excl. higher education)
Housing, local facilities
Defence
Other
France
25
Summary of the report on the situation and outlook of France’s public finances
Drivers to make public spending more efficient
Regarding
schooling
,
the
cost
of secondary schools is higher in
France than in other OECD countries .
Adjusting
these
expenses
would
form a powerful driver of efficien-
cy . Via such a driver, funding could
be reallocated to teaching common
core subjects, in which performance
in France is mediocre in relation to
the worldwide results of the OECD’s
programme for international student
assessment (PISA) . In
higher education
,
there are several avenues worth explor-
ing . For example, university funding could
be reallocated according to activity and
performance, and certain institutes could
be grouped together on the same site to
form a community of universities .
Annual cost per primary-school pupil and
per secondary-school pupil in 2013
Source:
Cour des Comptes
, based on OECD
data
In
domestic security
, several drivers
could improve the efficiency of police
and security forces . Personnel could
be redeployed differently according
to region, both in terms of police
officers and gendarmes, to tackle
crime in a more targeted manner .
A more far-reaching reform of how
police forces are organised nationally is
required: criminal investigators and re-
gional public-security services could be
incorporated within the same network .
On a judicial level, the police force and
gendarmerie could complement each
other more efficiently . Lastly, security
forces’ support departments could be
pooled .
Several possibilities should also be
considered to
boost
efficiency
of
France’s
housing policy
In terms of
social housing, the
Cour des comptes
has put forward two main possibilities
to explore . Firstly, priority should be
given to lower-earning, underprivileged
categories
of
the
population
by
reducing the upper-income limit in
socially sensitive urban zones . Sec-
ondly, public policy should refocus
on managing existing housing more
actively . Regarding housing allowances,
there needs to be more consideration of
efforts made by tenants in real terms,
according to whether they enjoy social
housing (HLM) or inhabit a private
housing unit . Finally, tax concessions
in private housing should be re-exam-
ined (reduced VAT, tax allowances
designed to favour rental property,
etc .) . Not only do these policies produce
considerable perverse effects, but their
efficiency is far from certain .
As a ratio to GDP, France’s level of
spending on healthcare is among
the world’s highest (11 .1% in 2014) .
Efficiency savings need to be made
by remodelling the service, whether
in terms of hospitals or local general
practitioners . Savings could also be
made by developing outpatient surgery
in place of conventional surgery, by
better controlling hospital prescriptions,
and by covering the costs of long-
standing illness via a comprehensive flat
rate for professionals rather than on a
fee-for-service .
Annual cost of a primary-
school pupil
Annual cost of a secondary-
school pupil
26
Summary of the report on the situation and outlook of France’s public finances
Drivers to make public spending more efficient
Significant reforms have been undertak-
en in terms of
pensions
, in the private
sector, then in the public sector . The
financial viability of these schemes
has thereby been improved . Yet
these changes are not enough to
ensure lasting financial balance, which
require further measures to be taken .
In terms of method, reforms should
be discussed in a different way to how
talks have been conducted in the past .
A formal consultation framework should
be put in place for talks between the
state, labour-relations representatives,
and pension-scheme directors, especial-
ly so that discussions on social-security
schemes and jointly governed schemes
can take place simultaneously . Further-
more, changes undertaken should seek
greater fairness between people in
employment, between pensioners and
people in employment, and between
different generations of pensioners and
different professional statuses .
Lastly, there is room for more efficien-
cy in
policies on employment, training,
and unemployment benefits
The
Cour
des comptes
has put forward several
ways of reorientating state-subsidised
jobs, which have resulted in a low level of
professional integration . These jobs should
target unqualified or underqualified
youngsters; more state-subsided jobs
could be offered in the commercial
sector; the maximum duration of
these jobs could be shortened, with the
activity forming a path to employment
supplemented with a training course
that pre-qualifies or qualifies the
participant, constituting an apprentice-
ship or professionalisation contract .
Concerning unemployment benefits,
the
Cour des comptes
identified various
avenues worth exploring in 2015 .
Several parameters that determine
the costs of unemployment benefits
should be revised: salary-replacement
rate; minimum period of registration;
duration of the period over which
benefits
are
received;
maximum
amount of benefits; scope of registered
public employers; cap on calculation
basis for contributions; rate of contribu-
tions; and variations in contributions .
Lastly, professional-training providers
abound,
adding
to
coordination
difficulties . A review of the plan to offer
500,000 training courses is due in 2017 .
This will give a qualitative assessment if
the scheme’s results and help provide
a structural, coordinated response to
the issue of training jobseekers .
27
Summary of the report on the situation and outlook of France’s public finances
Conclusion
The audit carried out by the
Cour des comptes
has revealed that failure to alter
current policy would place France’s public finance on a path that swerves far
away from the course set by the 2017 finance act and Stability Programme . This
jeopardises both the cut in deficit planned for 2017 and the continued fall in
deficit forecasted for 2018 .
Far-reaching changes are therefore required today in managing the country’s
public finance . In the short term, immediate corrective measures are needed
to ensure that the deficit does not run out of control in 2017 . Beyond 2017,
purposeful action in public spending should be taken to make France’s public
finance tenable once again . This can be done by rectifying a remarkable lack of
efficiency weighing upon certain major public policies .
For such a change to come into effect, three conditions are vital: an improvement
in collective teaching on public spending; wholehearted sincerity as a basis of
financial texts; and full involvement of all stakeholders, who should be given a
greater sense of responsibility .
Cour des comptes
13, rue Cambon
75100 Paris Cedex 01
Tél. : 01 42 98 95 00
www.ccomptes.fr