Budget situation and
outlook
COURT OF ACCOUNTS
June 2013
The purpose of this summary is to facilitate the reading and
comments of the report on the budget situation and outlook
adopted by the Court of Accounts, which exclusively holds
jurisdiction.
g
Warning
1
Introduction
. . . . . . . . . . . . . . . . . . . . . . . . . . .5
1
- Situation in 2012 . . . . . . . . . . . . . . . . . . . ..7
2
- Situation and outlook in 2013
. . . . . . . . .11
3
- Outlook for 2014 to 2017
. . . . . . . . . . . .16
4
- Long-term outlook for social security
schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
5
- Potential sources of savings . . . . . . . . . . .25
Appendices
. . . . . . . . . . . . . . . . . . . . . . . . . . .36
Contents
Summary
of the report on the budget situation and outlook
3
Introduction
As in previous years, this report on the budget situation and outlook was prepared
in accordance with Article 58-3° of the LOLF (Organic Law Governing Finance
Acts). The purpose of the report is to inform Parliament’s discussions on budget
guidelines.
Chapter 1 focuses on the budget situation in 2012. The Court of Accounts
examines the trend in public spending, revenues, deficit and debt, demonstrating how
France is positioned with respect to other European countries. More specifically, it
presents the financial statements of the French State government, social security
administrations and local public administrations.
Chapter 2 covers the 2013 fiscal year. Based on the information available at 24
June, the Court analyses the risks surrounding the achievement of the stability
programme’s revenue, spending and balance targets for all public administrations. In
2012, the Court obtained internal forecasts from the Finance Ministry divisions on
the fiscal year in progress. These forecasts have not been provided this year.
Chapter 3 covers the outlook for 2014 to 2017. After reviewing the structure of
the Public Finance Programming Bill of December 2012 and the Stability
Programme of April 2013, the Court examines the structural effort in terms of
revenues and spending needed to lower the public deficit to under 3.0% of GDP by
2015, with an adequate safety buffer. This report also presents the fiscal consolidation
programmes of a number of European countries.
This year, in Chapter 4, it describes the long-term financial outlook for the overall
social security scheme and all pension schemes.
In Chapter 5, the Court gives a more comprehensive and specific presentation
compared to previous years of the potential sources of savings resulting from its analyses
on public spending efficiency, in order to highlight the choices subject to the authority
of the Government and Parliament. These sources of savings include measures with
immediate impact affecting all public administrations, and more structural measures
specific to each category of public administration.
g
Summary
of the report on the budget situation and outlook
5
Summary
of the report on the budget situation and outlook
Despite a major structural effort to reduce the public deficit, it dropped by
only 0.5 point in 2012 to 4.8% of GDP, i.e. 0.3 point higher than expected.
Growth of economic activity was nil and public spending increased more than
expected. The deficit was higher than the average of other European countries and
also too high for public debt to be stabilised.
Situation in 2012
1
Slightly higher-
than-expected
deficits
The public deficit declined in 2012
(4.8% of GDP versus 5.3% in 2011),
but was slightly higher than the
Government’s target of 4.5%.
Although it slowed in relation to the
average for 2008-2011, growth in
spending (1.0% in volume terms and
0.9% excluding exceptional measures)
was stronger than expected (0.4%), only
half of which can be attributed to
unexpected payments to Dexia and the
European Union at fiscal year-end.
While the standards on State and social
security spending were met, the least
well-controlled government spending
such as local authority expenditures
grew faster than expected.
Increased spending was also too
strong to contribute to the structural
deficit reduction effort. This effort was
very significant (1.1 GDP point), but
only due to the strength of measures
aimed at increasing mandatory tax and
social security contributions, some of
which were taken over the course of the
year and yielded €22bn in 2012.
This brought the structural deficit
down to 4.0% of GDP, according to the
HCFP (National Budget Council), i.e.
0.3 point more than expected in the
2012-2017
Public
Finance
Programming Bill on an identical
calculation basis.
Court of Accounts
7
Summary
of the report on the budget situation and outlook
This structural effort was offset by
the impact of nil economic activity
growth, which undercut the cyclical
component of the deficit by 0.5 point,
to the extent that the public deficit
dipped by a mere 0.5 GDP point
relative to 2011, remaining close to
€100bn.
This deficit level was still very far
from where it needed to be to help
stabilise public debt, near 1.3% of GDP
in the 2012 economic environment.
Consequently, public debt continued to
rise, reaching 90.2% of GDP at year-
end, compared to 85.8% at the end of
2011. However, the interest expense of
public administrations fell 0.8% in
2012 on the back of particularly
favourable borrowing conditions.
Harsher conditions
than in other
European countries
The fall in public deficit was
virtually the same in France and, on
average, in the euro zone and the
European Union, where the deficit in
2012 remained at lower levels than in
France (respectively 3.7% and 4.0% of
GDP).
2011
2012
Budget balance
-5.3
-4.8
Cyclical component
-0.3
-0.8
One-off and temporary component
+0.1
0
Structural component
-5.1
-4.0
Breakdown of the public deficit (% of GDP)
Source: Budget Settlement Bill for 2012 and opinion issued by the HCFP.
Situation in 2012
8
Summary
of the report on the budget situation and outlook
Source: Eurostat
On average, the economic climate
was better in France than in other
European countries, and particularly in
euro zone countries, but the structural
balance showed greater improvement.
On average, other countries did a better
job of controlling the increase in their
spending and relied less on raising tax
and social security contributions. In
2012, France’s structural deficit (4.0%of
GDP) averaged higher than the euro
zone and European Union (2.1% and
2.8% according to the European
Commission).
Debt rose at the same magnitude in
France, the euro zone and the European
Union. French debt remained between
the averages of the euro zone and EU at
end-2012.
Germany set itself apart as the only
European company to post a budget
surplus (0.2% of GDP in 2012)
following a 1.0 point improvement . Its
structural balance was also in the black
(0.3% of GDP) and its debt more than
8 GDP points below France’s at the end
of 2012, despite being the same at the
end of 2010.
Situation in 2012
9
Summary
of the report on the budget situation and outlook
Varying trends for
different public
administration
categories
The central government deficit
declined little in 2012
(1)
. While some
tax revenues were stable on a constant
legislation basis, with VAT even dipping
slightly for reasons still only partially
explained, they were shored up by
substantial new measures. Government
spending decreased slightly in terms of
the volume-based norm, which is
unprecedented and due in large part to a
fall in interest expenses, but increased
somewhat in a broader scope.
Local
public
administration
expenditures picked up 1.2% in volume
terms in the national accounts.
A ramp-
up
in
operating
expenditures,
particularly the total wage bill, was also
observed. Despite growth in their tax
revenues significantly exceeding GDP
growth, their total revenues, including
value-stabilised government allocations,
increased at a slower pace than total
spending. As a result, their deficit
climbed in 2013 and their debt along
with it. Based on their financial
situation, local
communes
and inter-
municipalities were able to continue
increasing their investment, unlike the
regions and particularly unlike the
départements
.
The reduction of the social security
administration deficit marked time in
2012. Spending targets on health
insurance and basic mandatory schemes
were observed, but unemployment
benefits rose sharply and, despite
stronger growth in the total wage bill
than
in
GDP,
revenues
were
undermined by the deterioration of the
economic environment.
__________
(1)
€7.7bn in the national accounts and €3.5bn in the fiscal accounts.
Situation in 2012
10
Summary
of the report on the budget situation and outlook
Forecasts already
revised
The forecasts on economic growth
and changes in public revenues and
spending for 2013, on which the Initial
Budget Act, the Social Security Finance
Act (LFSS) and the Public Finance
Programming Bill were based, have been
significantly
revised
within
the
framework of the April 2013 stability
programme. The main revisions are
focused on revenues.
Based on the stability programme
forecasts, the budget deficit is expected
to hit €68.3bn in 2013 versus €62.3bn
under the Initial Budget Act; the deficit
of the overall social security scheme and
the old-age solidarity fund is expected to
reach €17.3bn versus €13.9bn under the
Social Security Finance Act.
The
estimate for the public administration
deficit is 3.7% of GDP versus 3.0%
under the Public Finance Programming
Bill.
Significant risk on
revenue forecasts
The biggest risk relates to the
macroeconomic assumptions for the
stability programme. The stability
programme is based on GDP growth of
0.1%, but this growth is actually liable
to be negative in 2013, which points to
weaker-than-expected revenues.
If, for
example, GDP growth was -0.1%
instead of +0.1%, in line with INSEE
forecasts, revenues would be down by
about 0.1 GDP point compared to the
assumption taken by the stability
programme.
Besides GDP growth estimates,
additional risks also weigh on the trend
in certain public revenues estimated
under the stability programme, as
shown in the following table. Lost
revenues could represent up to 0.3% of
GDP. There is also some grey area
surrounding the quantification of new
measures and the cost of tax-related
Court of Accounts
Situation and
outlook in 2013
2
There is a significant risk surrounding the revenue forecasts for the stability
programme in 2013. Depending on the trend in local spending, however, the
targets for public spending growth should be met.
11
Summary
of the report on the budget situation and outlook
VAT
0 - 1.5
Corporate tax
0 - 2.5
Total State
0 - 4
Property and residence taxes
0 - 0.25
Corporate value-added tax
0 - 0.5
Non-tax revenues from local authorities
0 - 0.15
Total local public administrations
0 - 0.9
Various central administration bodies
0 - 0.1
Taxes in favour of social security administrations
0 - 1.0
Total public administration
0 - 6
Risks, excluding revision of GDP growth, weighing on stability
programme revenues (€bn)
Source: Court of Accounts
disputes, however these can go both
ways.
Uncertainties were still running high
in mid-June regarding the revenues
expected
from
certain
taxes,
traditionally the corporate tax but also
VAT this year. The forecasts determined
starting in July by the administration
will be based on more accurate data
making it possible to better assess this
risk.
Situation and outlook
in 2013
12
Summary
of the report on the budget situation and outlook
Government
spending standards
that can and must
be observed
The Government has aimed to
stabilise public spending in terms of
value-based standards. After taking into
account margins on under-use of
available budget allocations, the risk of
exceeding the target represents €1.1bn
to €2.1bn of the overall budget. Part of
this risk is linked to the total wage bill
(about €0.5bn).
In €bn
Estimated risk for 2013
Low assumption
High assumption
Total overall budget (1)
1.9
2.9
Margin linked to under-use of
available budget allocations (2)
-0.8
-0.8
Total overall budget after taking the
margin into account (1+2)
1.1
2.1
Risk linked to levy on government
revenues (PSR) in favour of the
European Union
0.8
2.6
Total based on «zero-value»
standard
1.9
4.7
Evaluation of risks on government spending
Source: Court of Accounts
Situation and outlook
in 2013
13
Summary
of the report on the budget situation and outlook
The precautionary reserve, plus the
additional budget allocation freeze of
€2bn in January 2013, should be
enough to cover these risks if, like last
year, the budget allocations are not freed
up too early.
It may not be enough, however, if
the PSR (€0.8bn to €2.6bn) is added to
the risk on the overall budget levy on
government. The total risk would then
be €1.9bn to €4.7bn in terms of the
value-based standard, while the amount
of budget allocations is unlikely to
reach, much less exceed, the 2012 level
(€3.7bn).
In any event, there is no leeway left
to finance unexpected exceptional
expenditures.
Finally, in terms of the volume-
based standard, savings of approximately
€0.7bn in interest expenses and €0.8bn
in pensions, relative to the Initial Budget
Act, were incorporated in the stability
programme.
These
savings
will
probably be greater (by about €0.5bn) in
interest expenses.
Subject to the amount of the
European levy, government spending in
2013 should either be in line with the
stability programme targets and possibly
below them due to the decline in
interest expenses.
A plausible target
for public spending
growth
On the social security front, the
stability programme includes events
subsequent to the Social Security
Finance Act, such as the indexing of
benefits on a lower inflation forecast. It
also
raises
the
overly
optimistic
unemployment benefits forecasts of the
Public Finance Programming Bill.
With strict management, it should
be possible to generate savings in health
insurance spending of about €0.5bn
compared to the 2013 National Health
Insurance Spending Target (ONDAM).
These savings can help partially
offset the under-estimation of local
public administration expenditures,
particularly investments, under the
stability programme. Forecasts in this
area are intrinsically very fragile, but
local spending could be around €1.0bn
higher.
The forecast on public spending
growth
included
in
the
stability
programme appears plausible overall,
subject to sometimes significant and
unexpected changes in spending by local
authorities
and
some
central
administration bodies.
Situation and outlook
in 2013
14
Summary
of the report on the budget situation and outlook
Deficit targets liable
not to be met
despite a very
significant
structural effort
While the targets for stability
programme spending can undoubtedly
be met, a risk of 0 to 0.3 GDP point
weighs on revenues, for GDP growth of
0.1%, and the risk of another downturn
in the economic environment must also
be taken into account.
The public
deficit may therefore exceed the target of
3.7% of GDP in 2013.
The Public Finance Programming
Bill calls for a structural deficit equal to
1.6% of GDP in 2013 and the stability
programme 2.0%.
This deficit may be
higher for two reasons in particular: 1)
the upward revision of 2011 GDP by
INSEE after the stability programme
was submitted, meaning that the
structural component of the deficit
should be raised for all years starting
with 2011; 2) revenue losses in 2013,
likely
due
to
lower-than-expected
elasticity. It could therefore range from
2.15% to 2.45% of GDP.
However, the drop in revenues that
might result from GDP growth of less
than +0.1% would have no impact on
the structural balance.
Situation and outlook
in 2013
15
Summary
of the report on the budget situation and outlook
Court of Accounts
Outlook for 2014
to 2017
3
Clarification needed
on the budget trend
The Public Finance Programming
Bills include estimated targets, which
may or may not be met depending on
developments
in
the
economic
environment, such as the actual deficit
and
more
restrictive
provisions,
including
in
particular
structural
balance trends.
Given the budget trend revisions, the question is whether an adjustment needs
to be made to the Public Finance Programming Bill. The structural effort called for
by the stability programme in 2014 and 2015 is based on very substantial savings
and is necessary to return the public deficit to 3% of GDP by 2015, with a
sufficient safety buffer. The fiscal adjustment programmes of other European
countries could offer some potential ideas for reforms.
16
Summary
of the report on the budget situation and outlook
The actual deficit targets under the
Public Finance Programming Bill were
pushed back in the Stability Programme
and will be again if the Council of the
European
Union
follows
the
Commission’s proposal concerning the
budget trend.
The structural effort called for by
the Stability Programme for 2013 to
2015 is greater than or equal to the
effort required by the Public Finance
Programming Bill, and the targets for
limiting spending growth are equally
strict for 2014 and 2015.
However,
the
Public
Finance
Programming Bill’s structural balance
targets, which were not met in 2012,
may not be met in 2013 either in light
of the Stability Programme, and it is far
from certain they will be achieved in
2014.
The question is whether or not the
Public
Finance
Programming
Bill
should be adjusted to include the new
budget trends that became apparent in
the first half of 2013 and thus establish
a more relevant reference framework for
the coming years.
Source: 2012 Public Finance Programming Bill and April 2013 Stability Programme. Key : amounts
expressed as a % of GDP for deficits, debt, structural effort and increased revenues; expressed as a
growth rate for spending.
Stability Programme and Public Finance Programming Bill
2012
2013
2014
2015
2016
2017
Actual
public
deficit
Public Finance
Programming Bill
-4.5
-3.0
-2.2
-1.3
-0.6
-0.3
Stability Programme
-4.8
-3.7
-2.9
-2.0
-1.2
-0.7
Structural
deficit
Public Finance
Programming Bill
-3.6
-1.6
-1.1
-0.5
0
0
Stability Programme
-3.7
-2.0
-1.0
-0.2
+0.2
+0.5
Structural
effort
Public Finance
Programming Bill
1.4
1.9
0.5
0.5
0.4
0.1
Stability Programme
1.3
1.9
1.0
0.6
0.5
0.3
Increased
revenues
Public Finance
Programming Bill
1.1
1.6
-0.1
-0.2
0
-0.3
Stability Programme
1.1
1.5
0.3
0
0
-0.2
Increased
spending
Public Finance
Programming Bill
0.4
0.9
0.4
0.2
0.7
0.8
Stability Programme
1.0
0.9
0.4
0.2
0.4
0.6
Outlook for 2014 to 2017
17
Summary
of the report on the budget situation and outlook
The structural effort
called for by the
Stability Programme
is still necessary
The Stability Programme’s aim of
bringing the actual deficit down to 2.9%
of GDP by 2014 is based on overly
optimistic assumptions on GDP growth
and public revenues.
Given
the
exacerbated
growth
outlook, the aim of reducing the actual
deficit to under 3.0% of GDP was
pushed back to 2014 under the Stability
Programme, and will be pushed back to
2015 if the Council of the European
Union
follows
the
Commission’s
proposal.
Based
on
more
conservative
assumptions on GDP growth and public
revenues, the structural effort called for
by the Stability Programme for 2014
and 2015 (1.6 GDP point in two years,
i.e. the equivalent of €32bn) is necessary
to bring the public deficit back down to
3.0% of GDP by 2015 with a sufficient
safety buffer. The additional period
proposed by the European Commission
does not authorise any relaxation of the
structural deficit reduction effort.
2012
2013
2014
2015
GDP growth
0
-0.1
+0.8
+1.5
Cyclical component of
the balance
-0.8
-1.5
-1.9
-1.9
Structural effort
1.3
1.9
1.0
0.6
Structural component of
the balance
-4.0
-2.3
-1.4
-0.9
Time component
0
-0.1
-0.1
-0.1
Actual balance
-4.8
-3.9
-3.4
-2.9
Budget trend in a conservative baseline scenario (% of GDP)
Source: Court of Accounts
Outlook for 2014 to 2017
18
Summary
of the report on the budget situation and outlook
Very substantial
savings needed and
an increase in social
security
contributions in the
works
On average for 2014 and 2015, 80%
of the structural effort planned by the
stability programme is linked to public
spending. Specifically, the programme
calls for growth of public spending in
volume terms to be reduced to 0.4% in
2014 and 0.2% in 2015. This reduction
represents a major difference compared
to previous years and requires savings of
some €13bn and then €15bn, spread out
among all public administrations. At
this point, however, the savings provided
for under the stability programme still
need to be clarified at the State level and
are somewhat hypothetical at the local
authorities level.
Source: Court of Accounts based on INSEE data (adjusted for the impact of the 2009-2010 stimulus
plan) through to 2012 and based on the stability programme after 2012.
Furthermore, new measures aimed at
increasing mandatory social security
contributions, set to yield at least €12bn,
are expected to be voted into the Finance
Acts and Social Security Finance Acts for
2014: €5bn to offset the lower returns
generated by certain measures and the cost
of
the
CICE
(tax
credit
for
competitiveness and employment); €7bn
to
implement
the
structural
effort
provided
for
under
the
stability
programme in terms of revenues.
These new resources would have to be
allocated to social security, for which re-
establishing financial balance is a
priority,
or to the State, rather than to local
authorities.
Outlook for 2014 to 2017
19
Outlook for 2014 to 2017
20
Summary
of the report on the budget situation and outlook
Examples of other
European countries
Setting aside the measures that have
been
approved,
the
European
Commission has projected a deficit of
4.2% of GDP for France in 2014,
compared to averages of around 3.0%
for the euro zone and the European
Union. The structural deficit is expected
to remain higher in France relative to
the average for other countries and
France is also expected to see a greater
increase in debt.
While past reforms carried out in
Germany and the results of these
reforms led to a slight decrease in its
budget balance, the fiscal consolidation
programmes
of
other
countries
demonstrate their ability to take (or plan
to take) sometimes highly challenging
measures to balance their budgets.
According to a review of the fiscal
consolidation programmes in Spain, the
United
Kingdom,
Italy
and
the
Netherlands,
the
changes
in
the
structural balance were relatively close
from 2011 to 2013 (averaging around
1.0% of GDP per year, with the
exceptional case of the Netherlands,
which started off with a better budget
situation).
There are common factors in
the measures implemented since 2010 :
-
VAT hikes, particularly increases in
the normal rate, ranging from 1 to 3
points;
- an effort to limit the change in the
total wage bill through staff cuts and/or
multi-annual pay freezes, or even the
elimination of certain bonuses;
-
fast-track implementation of
pension reforms, calling in particular for
an increase in the retirement age;
-
determination
to
limit
the
expenditures of local authorities.
2008
2009
2010
2011
2012
2013
2014
-10
-2
-7
18
22
33
7
Budget trend in a conservative baseline scenario (% of GDP)
Source: Court of Accounts according to the reports appended to the draft Finance Acts and the stability
programme; excluding the impact of the 2009-2010 stimulus measures and community tax-related
disputes.
21
Summary
of the report on the budget situation and outlook
Court of Accounts
Long-term outlook
for social security
schemes
4
A deficit of more
than €15bn in the
overall social
security scheme for
the entire 2013-
2030 period
As the stability programme was
being drafted, the projected changes in
the total wage bill were revised, resulting
in a decline of nearly €10bn in the
estimated balances for the overall social
security scheme on a 2017 horizon.
According to the more or less material
impact of the current crisis on long-term
growth, the overall scheme could post a
deficit of €15bn to €20bn by 2020,
building up an equivalent debt of 8% to
12% of GDP on a 2030 horizon in the
least favourable scenarios. The majority
of this debt is expected to stem from the
accumulated deficits of the pension
branch, but the healthcare branch is also
expected to maintain an average deficit
of about €5bn per year over the period.
The long-term financial outlook for the overall social security scheme and all
pension schemes looks highly unfavourable based on updated economic
assumptions.
Long-term outlook for social security
schemes
22
Summary
of the report on the budget situation and outlook
In order to secure the re-absorption
of social security debt by 2025, only
compatible with the probable term of
CADES
(Social
Security
Debt
Redemption
Fund),
re-balancing
measures must be taken immediately
with an impact of at least €20bn on the
annual balance of the overall scheme on
a 2017 horizon, i.e. new efforts totalling
€5bn per year for 4 years. In addition,
reforms would have to be implemented
to
sustainably
reduce
spending,
particularly in the healthcare and old-
age branches.
AM (Health Insurance)
Branch Total
CNAF (National Family
A lowances Office)
CNAV (National Old-Age Pension
Fund)+FSV (Old-Age Solidarity Fund)
Balances of overall social security scheme branches based on the
economic assumptions of the 2013-2017 growth stability pact and an
average increase of 3.5% in the total wage bill from 2013 to 2030.
Source: Court of Accounts
Long-term outlook for social security
schemes
23
Summary
of the report on the budget situation and outlook
A more
unfavourable
pension scheme
outlook compared
to Pensions
Advisory Council
scenarios
The Court of Accounts also analysed
the risks weighing on the balances of the
overall pension system and on the main
pension schemes on a 2030 horizon.
As regards the overall pension
system, based on the macroeconomic
assumptions of the stability programme
for
2013-2017
and
the
Pensions
Advisory Council’s scenario C (i.e. a
historic increase in the total wage bill of
+3.5% per year), after 2017 the annual
pension system deficit is likely to reach
1.6% of GDP by 2030. Cumulative
deficits from 2013 to 2030 would thus
generate
funding
requirements
exceeding 17% of GDP . Growth in the
total wage bill of less than 0.25 point per
year would result in a deficit of 2.3% of
GDP, bringing cumulative deficits to
more than 22% of GDP by 2030.
These projections highlight the fact
that
pension
schemes
cannot
be
sustained over the long term, on a
constant
legislation
basis,
and
underscores the extreme sensitivity of
balances to even a small change in
economic growth assumptions over an
extended period.
Pension scheme balances are set to
decline significantly across the board by
Source: Court of Accounts
For ARRCO and AGIRC, assuming constant returns and taking into account
the agreements of 13 March 2013
Scenario C of the Pensions
Advisory Council
Baseline scenario
Negative scenario
Change in overall balance of pension system
(as % of GDP)
2030. By 2030, pension system deficits
should be predominantly concentrated
in the overall pension scheme (36%),
ARRCO-AGIRC
complementary
schemes (28%) and civil servant/
government agent schemes (34%).
Their accumulation would push
social
security
debt
above
the
redemption capacities of the CADES
fund for the overall pension scheme and
would drain the reserves of the ARRCO
and AGIRC complementary schemes.
Based on this outlook, re-balancing
measures are urgently needed alongside
more
structural
reforms
to
be
implemented on a more gradual basis.
Summary
of the report on the budget situation and outlook
Long-term outlook for social security
schemes
24
While public spending growth in
volume terms averaged 1.7% from 2007
to 2011, stood at 1.0% in 2012 and is
estimated at 0.9% in 2013 according to
government forecasts, the stability
programme calls for public spending
growth to be reduced to 0.4% in 2014
and 0.2% in 2015.
To achieve this
target, savings estimated up to €13bn in
2014 and €15bn in 2015 would have to
be generated relative to the estimated
trend in public spending growth (1.5%
per year).
To meet its commitments, France
would have to divide up the spending
reduction effort between all public
administrations.
In
addition
to
the
projected
budgetary impacts, the savings effort
must be perceived as a leverage used to
initiate more extensive reforms, ranging
from the adaptation of public policies to
governance
and
institutional
organisation. The effort begun in 2012
to modernise government initiatives
should work toward this objective.
Cross-disciplinary
measures to slow
public spending in
the short term
necessary to meet
the 2014 and 2015
public spending
reduction targets
The measures taken under the
RGPP (general revision of public
policies) will have no new impact on
spending in 2014 and the main
decisions expected to arise from the
modernisation
programme
of
the
Governmentwill have little impact on
the budget before 2015. Consequently,
in order to meet the stability programme
commitments for 2014 and 2015,
immediate cross-disciplinary measures
may be called for to slow down the key
determining factors in public spending,
such as a freeze on the civil servant wage
index, the temporary sub-indexing
(excluding minimum social security
benefits) of family allocations, pensions,
housing aid, the benchmark salary for
unemployment
insurance,
or
the
reduction of the rate of change in the
national health insurance spending
target (ONDAM).
Court of Accounts
Potential sources
of savings
5
Summary
of the report on the budget situation and outlook
25
Potential sources of savings
26
Summary
of the report on the budget situation and outlook
The total wage bill for public
administrations, including employer
contributions, came to €268bn in 2012,
i.e. 13.2% of GDP, after climbing 2.2%
per year on average since 2007.
About
one-fifth of this rise can be attributed to
a headcount increase and about four-
fifths to the increase of the average gross
salary per person. In the short term,
slowing the total wage bill for all public
administrations can only be achieved by
a reduction of the value of the civil
servant wage index, which is the only
reference point common to all three
public functions (State, local and
hospitals). A 1% increase in the value of
the
civil
servant
wage
index
automatically increases the total wage
bill by nearly €1.8bn, including €750m
for
the
State,
€600m
for
local
administrations and €400m for public
hospitals.
In the short term, without
addressing the other determining factors
analysed
later
in
this
document,
maintaining the freeze on the civil
servant wage index in 2014 and 2015 is
the only instrument that can be quickly
and technically used to partially slow the
rising trend in the total wage bill.
The rate of change in social
protection
spending
is
largely
determined
by
the
revaluations
established each year. For family
benefits and basic pension schemes for
example, the annual revaluation at
1 April 2013 (1.2% and 1.3%,
respectively) resulted in a €3.2bn
increase in overall pension scheme
expenditures.
A cross-disciplinary
measure aimed at sub-indexing family
benefits and pensions (including special
schemes) by 1 point in 2014 and 2015,
which would not affect minimum social
security
benefits,
would
reduce
expenditures by €3.8bn. This measure
could be adjusted according to the
beneficiaries’
financial
situation.
Applied to housing aid (individual aid)
this same measure would prevent an
additional expenditure of about €170m,
while the impact would be €165m for
the sub-indexing of the benchmark
salary used to determine the job-seeker’s
allocation.
Given
the
slower
change
in
expenditures reimbursed by health
insurance currently observed, and the
downward revision of inflation forecasts,
it may be possible to achieve a 0.2-point
reduction in the annual growth of health
insurance expenditures currently used as
a target (ONDAM
(2)
)
in the multi-
annual programming, i.e. reducing this
increase to 2.4% in 2014 and 2.3% in
2015 and 2016.
Taking into account
the savings that can be generated in
2013 (about €500m relative to the
target), health insurance spending
would decline by about €900m in 2014
and €1,200m in 2015.
In addition to
__________
(2) National health insurance spending target
Potential sources of savings
27
Summary
of the report on the budget situation and outlook
the health insurance spending reduction
measures that can be taken, the
moderation of regulated rates applied to
certain healthcare professions, which are
little
exposed
to
the
economic
environment, could contribute to this
target through a freeze or sub-indexing,
to prevent them from receiving more
favourable treatment in a period when
changes in civil servant wages and social
security benefits would be subject to
such measures.
In the medium term, freezing or
sub-indexing
measures
are
not
a
sustainable solution, from an economic
and social point of view, to the
imperative need to reduce public
spending.
More
structural
saving
measures are needed, focused on the
operations and actions of all public
administrations, their institutional and
territorial organisation, civil service
management methods, oversight of local
authority expenditures, and of course
savings efforts that need to be continued
in order to help reduce administration
management costs.
Structural saving
measures at the
State level
Controlling the State total
wage bill is critical
The increasing trend in the State
total
wage
bill
(22%
of
total
expenditures, 33% with pensions)
observed in recent years averaged
€1,300m per year on a constant-
headcount basis, subject to the impact of
category-specific measures (€650m),
individual
advancement
measures
(€1,200m - positive age and job-skill
coefficient), the «Noria effect» (impact
of changes in compensation due to
hiring and departures) (-€1,050m
linked to the higher salary cost of
departing
employees).
To reduce this annual increase to the
€300m target set by the government for
2014 and 2015, adjustment measures
need to be considered for these various
determining factors. Four scenarios
presented in the report apply alternately
to efforts on category-specific measures,
individual advancement measures, the
value of the civil servant wage index and
on headcount.
According to these scenarios, based
on a stabilised headcount, limiting the
increase in the State total wage bill to
€300m
per
year
calls
for
the
Potential sources of savings
28
Summary
of the report on the budget situation and outlook
implementation of a very strict salary
policy combining various degrees, such
as a freeze or low revaluation of the value
of the civil servant wage index, a sharp
reduction in category-specific measures,
a
significant
slowdown
in
career
advancements (positive age and job-skill
coefficient).
A freeze on the value of the civil
servant wage index cannot be considered
as a permanent application measure.
Focusing
the
adjustment
on
the
determining factors of civil servant
compensation, by pushing back career
advancements and reducing category-
specific measures, is an option which,
though it should not be ruled out,
should not be exclusive, otherwise the
State would be deprived of considerable
leverage
on
its
human
resources
management policy. Undoubtedly, the
best way to go would be a balanced
«mix» of the measures on the value of
civil servant compensation and on the
headcount. A headcount reduction,
divided up entirely or partially among
State
administrations,
could
be
accompanied by an option aimed at
increasing staff working hours in order
to limit the adverse consequences on the
quantity
and
quality
of
services
rendered.
Contribution to savings by
government intervention
expenditures
Government interventions, which
account for one-third of government
spending, could in the future contribute
to the public spending reduction effort
by exploring three different avenues.
Better targeting of intervention
mechanisms with respect to their
effectiveness. A few recommendations
from recent Court of Accounts’ reports
illustrate the possible options that can be
explored in the area of financial aid for
the press, emergency farming aid,
subsidies
for
the
main
athletic
federations
or
in
the
ongoing
professional training sector.
The
reduction
of
similar
programmes by different public bodies
is another avenue: joint intervention by
the State and local authorities in certain
sectors, such as culture, could be better
coordinated, while in employment
(«RSA-Activité»,
«Allocation
de
solidarité
spécifique»)
or
land
development planning, the number of
programmes has accumulated, making it
harder to understand the different
policies developed and increasing the
associated management costs.
The third potential source of savings
is by revising the foundations of certain
intervention
mechanisms
of
questionable utility or whose financial
sustainability can no longer be ensured.
The evaluations of public policies
launched by the government should
help identify these mechanisms. Recent
controls performed by the Court of
Accounts have provided a few examples,
including certain forms of housing aid,
aid for tobacconists, or increases in
statutory annuities.
Potential sources of savings
29
Summary
of the report on the budget situation and outlook
It is also important to continue
improving the efficient management of
the government and its operators. Both
the purchasing policy, subject to
ambitious saving targets of €2bn for the
State by 2015 as established by the
Inter-Ministerial Committee for the
Modernisation of Public Initiatives on 2
April 2013, and the management of
government real estate, could be
expanded.
The
reduction
of
the
operational management costs of State
operations
is
another
avenue
of
improvement, which could be applied
for example to management of taxes and
pensions or keeping military equipment
in working order. Finally, operators
should be encouraged to develop their
own resources in order to finance their
development without requesting State
subsidies, which are already being cut in
many sectors.
Several Court of Accounts’ reports
recommend
simplifying
the
organisation of decentralised services in
France and abroad. The topical public
report on «the territorial organisation of
the State government», published in
summer
2013,
will
offer
several
recommendations aimed at simplifying
and modernising the State’s territorial
services and enhancing the consistency
of their presence and operations with
those of the local authorities services.
The organisation of services abroad
could also stand improvement.
However, State investments offer
little opportunity for savings due in
large part to their low percentage in
government spending (3.5%), their
positive impact on short-term activity
and, where relevant, on long-term
potential growth.
Nevertheless, the
latest White Paper on national defence
published in April 2013 calls for a
significant
decrease
in
military
equipment orders. The corresponding
savings will depend, however, on the
outcome of contract renegotiations
between the State and its public- and
private-sector suppliers. Looking at
civil-sector
investments,
most
expenditures
are
made
by
local
authorities (€52bn in 2012, i.e. 70% of
the total), with the State coming in
second with €3.9bn in 2012.
Most
discussions on the State’s civil-sector
investments concern transport, within
the framework of the SNIT (national
transport infrastructure scheme), and in
particular the need for a prior evaluation
of the socio-economic profitability of
the projects and their prioritisation.
Even if the approach selected in this
report is focused on potential savings in
public spending, it is also recommended
to
continue
cutting
tax-related
spending, as illustrated by examples
drawn from the Court of Accounts’
observations regarding various State
intervention sectors.
Potential sources of savings
30
Summary
of the report on the budget situation and outlook
Structural measures
within the scope of
social security
organisations
The concerning situation of social
security finances and the bleak outlook
in the short, medium and long terms
reviewed in Chapters 3 and 4 of the
report call for radical measures from the
government authorities. In its reports on
the situation of the Social Security
Finance (RALFSS) and on the budget
situation and outlook (RSPFP), the
Court of Accounts developed proposals
to reduce the growth rate of social
security spending (see above), to re-
examine the legitimacy of certain
mechanisms, to reduce the social niches
eating into social security revenues, to
reduce the management costs of social
security funds and to better manage
unemployment insurance expenditures.
Various potential savings proposals
are listed and illustrated in the report.
For the healthcare branch, the report
addresses the potential savings that can
be generated in the medical transport
sector, in respect of the coverage of the
social
security
contributions
of
independent medical practitioners or in
terms of calculating daily indemnities.
Altogether,
the
potential
savings
identified for the health insurance sector
represent potential savings of nearly
€1.5bn.
Looking at family allocations, aside
from the government’s recent decisions
to reduce the ceiling on the family
quotient, the Court of Accounts pointed
out that the redistributive nature of
certain benefits was uncertain: this is
particularly the case for the CMG
(childcare supplement) component of
the PAJE (early childhood benefit)
which is of greater benefit to wealthier
families. Similarly, the rapid rise in
social security expenditures, averaging
+7.5% per year from 2009 to 2012, calls
for an evaluation of the utility of these
measures, currently accounting for
€4.5bn or 7% of family allocation
benefits.
Looking at the old-age branch, and
without prejudice to decisions that
might be taken following the working
group chaired by Ms. Yannick Moreau,
the Court recommended reducing
family benefits allocated to pensioners,
in particular the 10% increase in
pensions for raising three or more
children, or at least taxing this benefit,
as the current tax exemption costs the
State about €900m.
The reduction of social niches,
which eat into the bases on which social
security contributions are based, need to
be
systematically
re-examined,
in
accordance with the 2012-2017 Public
Finance Programming Bill. There are
three
possible
avenues
worth
considering:
Potential sources of savings
31
Summary
of the report on the budget situation and outlook
- the conditions for applying the
CSG
(general
social
security
contribution) to pensions (exemption
for low-income earners, 6.6% for high-
income earners, versus 7.5% for wage
earners)
could
be
reviewed.
An
alignment of the percentage of taxable
pensioners with the percentage of wage
earners would bring in another €1.2bn
to the social security system.
- the exoneration of social security
contributions
benefiting
individual
employers over 70 years of age added to
the tax reductions associated with the
compensation of employees working
from home. The elimination of this
exemption
would
reduce
the
corresponding tax expenditure by about
€370m;
- the social security contributions
paid in respect of collective healthcare
and personal protection policies are
subject to a tax of 8% allocated to social
security, while the top-up and employer
contribution are subject to a normal rate
of 20%.
Harmonisation of the normal
rate would boost social security revenues
by €1.2bn.
While the majority of national social
security funds will negotiate their target
and management contracts in 2013, the
Court of Accounts recommends that the
supervisory authorities set ambitious
spending targets on personnel and
administrative management, estimating
the potential savings at €1bn over five
years.
The rapid deterioration in the
financial position of the unemployment
insurance
scheme
reflects
the
environment in which the renegotiation
of
the
unemployment
insurance
agreement will take place between
management and union representatives
in the second half of 2013. The recent
report published by the Court of
Accounts in January 2013 on the «job
market:
undermined
by
high
unemployment,
calling
for
better
targeting of policies», identifies a few
expenditure reductions to clarify the
search for leeway.
Structural measures
at the local
administration level
Among local public administrations,
spending has increased the most over the
past 30 years, climbing from 8.6% in
1983 to 11.7% of GDP at the end of
2011, representing average volume-
based growth of 3.1% per year. The high
level and momentum of local spending
cannot be exclusively attributed to the
impacts of skills transfers resulting from
decentralisation laws: only 1.67 points
of the 3.1-point increase in GDP from
1983 to 2011 was due to this impact.
The rest of the increase in local
spending,
i.e.
1.38
GDP
points,
occurred on a constant skills basis.
The 2012-2017 Public Finance
Programming
Bill
calls
for
local
Potential sources of savings
32
Summary
of the report on the budget situation and outlook
authorities to contribute to the effort to
restore the budget balance, with the first
goal being to stabilise the budget for
State financial aid paid in 2013,
followed by a decrease of €750m per
year in 2014 and 2015.
This budget
was established at €1.5bn per year,
resulting from the terms of the April
2013 stability programme, which also
calls for the signing of a trust and
responsibility pact negotiated between
the State and local authorities in order to
get them more involved in public
spending policy. The contribution of
local authorities to the effort to restore
the budget balance is also expected to
increase, meaning that local authorities
will need to find a new financing model
that does not undermine the relative
structural balance of their budget.
Given the momentum of local
spending, a twofold objective is in order.
Firstly, it is important to prevent the
decrease in State financial aid from
automatically leading to local tax hikes,
given the already high level of overall
mandatory taxes and social security
contributions. Against this backdrop, a
total reduction of €4.5bn in State
financial aid over two years would make
it necessary to focus primarily on
identifying potential savings in local
spending.
Secondly, it is also important to
identify areas in which savings could be
generated,
in
order
to
avoid
makingadjustments
solely
to
the
investment
cash
flows
of
local
authorities and their organisations, or
through the increased use of debt.
Potential sources of savings are primarily
the
responsibility
of
the
local
authorities, even though the State also
has regulatory leverage at its disposal.
State regulatory leverage
on local public spending
One source of regulatory leverage is
the reduction of State allocations already
under way. The distribution of the effort
between the various levels of local
authorities, currently under discussion
by the Local Finance Committee,
should take into account the financial
leeway each category of local authority
has at its disposal. If they were to receive
new fiscal resources, the decrease in
State allocations would no longer serve
as an incentive to reduce local spending
and thus total public spending; rather it
would
merely
reduce
the
State’s
budgetary expenses.
Given
the
reduced
resources
allocated by the State to the vertical
equalisation of the different categories of
local authorities and the impacts of the
new economic tax scheme, horizontal
equalisation between a given level of
local authorities should improve, based
on the model of the FPIC (inter-
commune
and
commune
equalisation
fund),
transfer
duties
for
the
départements
or equalisation funds for
Potential sources of savings
33
Summary
of the report on the budget situation and outlook
the CVAE (tax on corporate added
value) received by the regions and
départements
.
The effort to reduce the cost of
standardisation, which is weighing on
local spending, must be significantly
stepped up in the wake of the recent
Lambert-Boulard Report (March 2013).
The measures adopted by the Inter-
Ministerial
Committee
for
the
Standardisation of Public Initiatives are
headed in this direction. Savings of
€500m on flows of normative provisions
and existing normative provisions,
which had an estimated net impact of
€1.3bn in 2012, are not out of reach.
Increased pooling of services is one
of the aims of the bills targeting the
modernisation of territorial public
initiatives and development of territorial
solidarity and local democracy.
In
particular, these bills call for a transfer as
of right, to the public institution for
inter-
commune
cooperation, of
commune
personnel providing the services subject
to a skills transfer, and for a broader
definition of the jobs that can be done
by a given service provider. These
positive objectives, which are in line
with the suggestions made by the
financial
jurisdictions,
could
be
enhanced by making it mandatory for
each inter-
commune
group to achieve a
quantified
resource-pooling
target
(expressed as a percentage of the limit on
the increase in aggregated operating
expenditures) and by subjecting the
portion of State financial aid to the
condition of meeting these targets. This
is already being considered, by basing
10% of the inter-
commune
allocation on
an inter-
commune
resource-pooling fund
as from 2015.
France’s administrative organisation
can also be described as an overlapping
of skills and multiple structures that
generate excess costs for local public
initiatives.
Clarifying
skills
and
improving the coordination of local
public authorities, which the Court of
Accounts has often identified as a
necessity,
could
also
generate
considerable savings.
Local investment accounts for over
70% of civil public investment in
France. In its annual public report for
2013,
the
Court
of
Accounts
recommended avoiding
département
-
region co-financing of investments and
suggested establishing a limit on
subsidies for projects conducted by
other local authorities. Furthermore, for
all local authorities, it is possible to
define an obligation to carry out a
multi-annual impact study of operating
expenses generated by investments
exceeding a limit to be defined, as called
for
by
the
above-mentioned
bill
targeting the development of territorial
solidarity and local democracy.
Potential sources of savings
34
Summary
of the report on the budget situation and outlook
Savings subject to the
responsibility of local
authorities
Potential savings must be capable of
offsetting the drop in State financial aid.
Management of personnel costs
represents a major issue for the budget
outlook of local authorities, given its
high percentage of their operating
expenses (35% on average) and how fast
this percentage is rising (+3.5% in 2012,
i.e. +€1.6bn, after +2.4% in 2011). If
the
communes
alone had maintained
their expenditures at their 2011 level in
2012, they would have generated
savings of €850m. The sources of
savings are the same as those described
earlier for the State: slowering career
advancements, moderating category-
based measures, and regulating staff
headcounts and working time. In
autumn 2013, the Court of Accounts
will publish a topical report on local
finances which will examine these
aspects in greater detail.
Streamlining management of the
considerable cultural heritage belonging
to the local authorities is an avenue well
worth exploring, as it chalks up more
than €3bn per year in maintenance
expenses. The Court of Accounts’ 2013
annual public report demonstrated that
management of the real estate belonging
to
local
authorities
is
still
underdeveloped.
More
efficient
management could generate potential
savings of around €150m.
Similarly,
a
more
efficient
purchasing policy
could contribute
savings in the area of recurring
purchases, estimated at €29.7m in 2012,
carried out internally or outsourced.
The «Advertising and public relations»
line alone accounts for €1.5bn and
«Travel and Receptions» €308m (2012).
Economic
intervention
policies
represented an overall expense of €5bn
in 2012, including €2.3bn for the
regions and €1.7bn for the
départements
.
In its 2007 topical report focused on
economic decentralisation, the Court of
Accounts observed a lack of consistency
and coordination in local authorities’
initiatives in this matter. Without
prejudice to enhancing the role of
«regional leader» which could lead to the
adoption of the bill aimed at mobilising
the regions for growth, employment and
promotion of equality in the territories,
the re-examination of all the aid
mechanisms,
the
streamlining
of
structures and development of the
evaluation of their effectiveness could be
a potential source of savings for all local
authorities, estimated at around 10% of
the total cost of economic interventions,
i.e. potential savings of €500m.
Optimising the management of
local public services is another avenue,
through the establishment of oversight
tools appropriate to the multiple
contributors working in a sometimes
Potential sources of savings
35
Summary
of the report on the budget situation and outlook
poorly coordinated manner in the
electricity distribution, household waste
management and sorting, water and
sanitation sectors. Another way to
optimise these services would be to
strengthen the responsibilities of certain
categories of local authorities, such as
the management of social intervention
mechanisms
by
the
départements
.
Improved overall efficiency could be
sought and overseen by the local
authorities and their decision-making
bodies, through the establishment of
quantified, prioritised targets whose
implementation is carefully monitored.
The transmission and consolidation of
the
most
significant
performance
indicators at the national level would
offer useful reference points for this
optimisation effort.
Appendices
36
Summary
of the report on the budget situation and outlook
Additional charts and tables
Source: European Commission
Source: European Commission
Appendices
37
Summary
of the report on the budget situation and outlook
Potential risks in terms of «zero-value» standards in 2013
Source: Court of Accounts
Appendices
38
Summary
of the report on the budget situation and outlook
Local public administration expenditures under the stability programme
Source: INSEE through to 2012 and stability programme thereafter
Source: INSEE (2012) and stability programme (2013)
Appendices
39
Summary
of the report on the budget situation and outlook
Stability programme assumptions in France and Germany
Budget trend in Germany
Source: German stability programme
Source: Court of Accounts according to the stability programmes
Appendices
40
Summary
of the report on the budget situation and outlook
Change in overall social security scheme and in old-age solidarity fund
under different economic assumptions
Change in CADES net debt and social security debt excluding CADES
Source: Court of Accounts
Source: Court of Accounts