PUBLIC FINANCES AND ACCOUNTS
PUBLIC FINANCES:
WORK TOWARDS
REFORMING THE
ORGANISATIONAL
FRAMEWORK AND
GOVERNANCE
Thematic public report
Summary Report
November 2020
2
Summary of the Thematic Public Report of the Cour des comptes
g
AWARNING
This summary report is intended to facilitate the reading and use
of the report from the Cour des comptes.
Cour des comptes is only accountable for the report.
Responses from the administrative bodies, organisations and public
authorities concerned appear after the report
.
3
Summary of the Thematic Public Report of the Cour des comptes
Summary
Introduction
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
1
Improving multi-year planning and coordination of public
budgets
7
2
Re-establishing an global approach towards fragmented
public finances
11
3
Ensuring that the central government’s budget reflects
the principles of unity, universality and effectiveness
15
Audit recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5
Summary of the Thematic Public Report of the Cour des comptess
Introduction
France went into the 2020 health and economic crisis without managing to
straighten out its public finances, therefore leaving it without
the ability to
cope
with this major unprecedented shock as well as it possibly could .
France’s public finances have not been balanced even once over
the past forty
years . Over the last twenty years, since the single currency was created, the
deficit has exceeded gross domestic product by 3% or more for fifteen fiscal
years .
Even though France was able to come out of the excessive public deficit
procedure in 2018, its public deficit was still 3% of GDP at the outset of the
health crisis, whereas Germany had had a surplus since 2012 .
The huge downturn in business activity due to the Covid-19 pandemic has
caused huge long-term imbalances in public accounts . According to the latest
government forecasts , the public deficit could hit 11 .3% and public debt is
expected to reach 119 .8% of GDP in 2020 .
Solde public en valeur et sa tendance depuis 1950 (prévision 2020 en pointillés)
Source: The Cour des Comptes, using data from the French National Institute for Statistics and
Economic Research (INSEE) and the 4th Supplementary Finance Act for 2020
Please note: the dark straight line represents the public balance level since 1950 (linear regression).
As a GDP percentage
- 11,3
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
- 12
- 10
- 8
- 6
- 4
- 2
0
2
1
Forth Supplementary Finance Act for 2020 .
6
Introduction
Summary of the Thematic Public Report of the Cour des comptes
Facing this new crisis, which has been unprecedented in its abruptness
and its magnitude, and has had huge long-term effects on public finances,
the Cour des Comptes has set out to analyse the advantages and limits of
framework laws on budgeting and,
building on the proposals made as part of
investigative work on Framework Law for Budget Acts (LOLF) by the French
National Assembly’s Finance Committe
2
,
make recommendations to improve
governance, coordination and management of public budgets,
without making
any changes to the French Constitution.
This report firstly analyses
the arrangements for planning and coordinating
public budgets
and sets out to propose mechanisms for setting a multi-year
trajectory for public budgets and ensuring that it is followed .
It then explores
the operating framework for all public budgets
and makes
recommendations which aim to reinforce the global approach towards
fragmented public finances .
Finally, it examines
the central government’s budget a
nd proposes a new form
of governance, in order to ensure that the main budgetary principles of unity,
universality and efficiency are upheld .
2
Eric Woerth, Laurent Saint-Martin,
Report at the end of investigative work on implementing
the Constitutional Bylaw Relating to Finance Acts
, the French National Assembly’s Finance
Committee, report no . 2210 (XVth legislative term), 11 September 2019 .
7
Summary of the Thematic Public Report of the Cour des comptes
1
Improving multi-year
planning and coordination
of public budgets
Establishing
long-term
outlooks
as a central aspect in order to
implement
public
policies
and
properly
govern
public
budgets
is not a new idea . In 2008, it led
to introduction of public finance
programming bills to ensure that
public
administration
accounts
remained balanced (Article 34 of the
French Constitution) . The adoption
of the Framework Law for Public
Budget Planning and Governance
(LOPGFP) of 17 December 2012
was a further step, as it transposed
the provisions of the Treaty on
the
Stability,
Coordination
and
Governance
of
Public
Budgets
(TSCG) into French law . The content
of
public
finance
programming
bills was formally established and
expanded, and the High Council
of Public Finances was created to
assess how coherent the budgetary
planning is and how realistic the
economic forecasts are .
The results of the first ten years of
the multi-year public budget strategy
are disappointing . The roll-out of
the
public
finance
programming
bills has been marked by repeated
failures . The objectives set out in
the five programming bills since
the constitutional review in 2008
(including
the
three
programms
following the 2012 framework law)
have
only
rarely
been
achieved .
While the financial crisis and the
2010 recession impeded the initial
Planning Act, they do not explain
why there has been a subsequent
failure to follow the trajectories laid
out, even when economic growth
was close to its potential level
8
Summary of the Thematic Public Report of the Cour des comptes
Average change in public debt: a discrepancy between the trend observed
and the trend planned in public finance programming bills (LPFPs)
Source: The Cour des Comptes, based on data from LPFPs and the French
Ministry of Economic and Financial Affairs For 2020, the curve corresponds to
the forecasted amount stated in the fourth Supplementary Finance Act for 2020..
The
weak
coordination
between
the budget acts has limited the
approach’s effectiveness . Firstly, the
programming bills do not apply to
the annual social-security financing
and budget acts . In addition, the
multi-year
fiscal
periods,
which
are shaped in the spring (with the
stability programme), then during
the summer (with discussions on
the direction of public finances) and
the autumn (with the economic,
social
and
financial
report)
are
disconnected from each other and
from public finance programming
bills . Furthermore, the springback
effect forecasted in laws has not
been effective, both for the corrective
mechanism introduced by the 2012
framework
law
and
the
annual
expenditure regulation mechanisms
(standards
around
central
government expenditure increases
or the National Objective on Health
Insurance
Expenditure
(ONDAM))
that have been circumvented too
often .
However,international comparisons
demonstrate the benefits of a solid
multi-year
framework
based
on
strong political engagement, setting
credible, flexible and sustainable
expenditure targets, and monitoring
changes
in
revenue .
While
the
divergence
observed
since
2007
between
the
deficit
and
debt
situation in France and the situation
of its main European partners does
reflect different political choices, it
is also the result of public budget
coordination
and
programming
mechanisms that are sometimes
more developed and respected in
some eurozone
Member States .
Improving multi-year
planning and coordination of public budgets
LPFP 2009-2012
LPFP 2011-2014
LPFP 2012-2017
LPFP 2014-2019
LPFP 2018-2022
Produced
and forecasted
As a percentage of GDP
60
70
80
90
100
110
120
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
9
Summary of the Thematic Public Report of the Cour des comptes
Improving multi-year
planning and coordination of public budgets
Public deficit and debt trajectories in France, Germany
and the eurozone (percentage of GDP)
Source: The Cour des Comptes, based on Eurostat data, European
Commission forecasting (spring 2020) and the forth Supplementary
Finance Act for 2020
In order to ensure the long-term
sustainability
of
public
budgets,
without making any changes to the
French Constitution
, the Cour des
Comptes
recommends
increasing
efficiency around coordinating and
planning
public
budgets,
based
around four complementary areas of
focus:
•
Set
sustainable
and
realistic
financial trajectories
by setting out
multi-year expenditure allocations
and
sub-allocations
and
new
revenue
measures
(expressed
in
billions of euros) in Planning Acts,
as well as planning provisions in
order to deal with uncertainties, and
by establishing rolling three-year
budgets for the central government;
• Introduce
annual
monitoring
instruments
,
in
particular
by
ensuring that, in each budget act, the
discrepancies between the Annual
Budget Acts and the trajectories
planned in LPFPs are offset and
explained (“discrepancy counters”),
by
introducing
rolling
three-year
budgets, which are also monitored
over three years, and by conducting
expenditure reviews following the
timetable set out in Budget Acts;
•
Independently and continuously
monitor
how
the
trajectory
is
performing,
by extending the remit
of the High Council of Public Finances
to cover the assessment of
whether
revenue and expenditure forecasts
are realistic, evaluating the new main
measures and identifying potential
deviations from the trajectory;
•
Spell
out
a
clear
long-term
approach
to
public
policy
decisions
by
introducing
annual
discussions about public debt and
its sustainability, taking into account
off-balance sheet commitments .
- 20
0
20
40
60
80
100
120
-12
-7
-2
3
8
13
18
Eurozone public balance (19 countries)
German public balance
French public balance
Eurozone public debt (19 countries)
German public debt
French public debt
Public debt (percentage of GDP)
Public balance (percentage of GDP)
11
Summary of the Thematic Public Report of the Cour des comptes
In
order
to
make
things
clearer
around
public
decision-making,
the
fragmentation of public policy resources
must be overcome by making substantial
efforts to put in place mechanisms that
will ensure that there is an over-arching
approach for all actions taken by the
various public administrations .
The institutional, legal and financial
fragmentation
between
public
administrations represents an obstacle
to make clear decisions and makes it
difficult to properly understand how
public funds are being used.
The
fragmentation
of
the
French
budgetary
framework
reflects
the
complexity
of
the
institutional
framework,
which
features
more
than 90,000 entities from the three
sub-sections of general government
(central government, social security
and local public authorities), which
have
overlapping
and
constantly
changing jurisdictions . This has resulted
in the establishment of complex and
incomplete instruments to manage the
implementation of public administration
budgets . The resulting multiple financial
connections between the different areas
of public action affect the applicability
of each public administration’s balance .
Proportion of public expenditure for each type of public administration
that covers a major function
Source: The Cour des Comptes, based on Eurostat data (Government-function
classification data (COFOG))
Re-establishing an global
approach towards fragmented
public finances
2
0%
10% 20% 30% 40% 50% 60% 70% 80% 90%
100%
Total
General services
Defence
Public order and security
Economic affairs
Environmental protection
Housing and community infrastructure
Healthcare
Recreation, culture and religion
Education
Social welfare system
APUC
APUL
ASSO
12
Summary of the Thematic Public Report of the Cour des comptes
Re-establishing an global approach towards
fragmented public finances
Amount of public expenditure covered in finance acts
(order of magnitude in billions of euros for 2019)
Source: The Cour des Comptes, based on national accounts (INSEE, Eurostat, the
Department of Research, Investigation, Evaluation and Statistics (DREES), and the social
protection accounts published in June 2020 for 2018 extended into 2019 due to the
proportionality rule), transfers to local public authorities presented in the budgetary
accounts (2019 budget implementation note) and the scope of the LFSS established by
excluding additional schemes and the unemployment insurance scheme (as well as the
National Employment Agency). In this framework, by convention, all hospital expenditure
is included within the LFSS.
* National accounts data, excluding internal transfers to public administrations.
** The data includes special accounts for pensions, which have parameters set out in the
LFSS.
In order to reestablish an over-
arching approach to fragmented
public
finances,
the
Cour
des
Comptes recommends:
•
Creating
a
permanent
consultation
body,
made
up
of
central
government,
social
security and local public authority
representatives, in order to bring
together all public administrations
to
establish
sustainable
national
public budgets and set out rules for
tax-sharing and resource guarantee
arrangements
between
public
administrations in Public Finance
Programming Bills;
•
Introducing general discussions
in the French National Assembly
on public revenue, sharing public
revenue
and
requirements
for
balancing central government and
social security budgets, before Social
Security Financing and Budget Bills
are scrutinised;
13
Summary of the Thematic Public Report of the Cour des comptes
Re-establishing an global approach towards
fragmented public finances
Composition of general social security system + Retirement Solidarity Fund (FSV)
revenue in 1990 and 2019 (expressed as a % of the total revenue)
Source: Court of Auditors from the CCSS report of September 2020 and July 1992
•
Expanding and refining the scopes
of Budget Acts, particularly Social
Security Finance Acts
, by extending
them to cover additional schemes
and
unemployment
insurance
schemes, and enacting “best efforts
laws” for social security, which would
be presented in the spring, just like
Finance Review Acts covering central
government budgets;
• Grouping together
all matters
relating
to
local
authority
funding
within
a
new
budget
priority
, Dealings with local public
authorities, which would be made
up of programmes corresponding
to the different types of resources
that they receive, and assessed
as part of discussions on local
finances in Parliament .
94
2,5
3
0,5
Social security contributions
Allocated taxes and duties
General social contributions (CSG)
(introduced in 1991)
Public contributions
and transfers
from other schemes
Other resources
50
17
20
11
2
14
Summary of the Thematic Public Report of the Cour des comptes
Re-establishing an global approach towards
fragmented public finances
Simulation of a new “Dealings with local public authorities” priority
Source: Cour des comptes
15
Summary of the Thematic Public Report of the Cour des comptes
In order to ensure that the public
policies implemented are clear and
effective, there needs to be a more
over-arching
approach
and
more
determined efforts from the central
government to be effi
cient with funds .
This
is
because
the
growing
fragmentation
of
the
central
government budget is making it
impossible to have a consolidated
approach towards the resources
allocated to each public policy.
The principles of unity and universality
in central government budgets have
been increasingly abandoned in recent
years, in tax expenditure, charges
against revenue, tax allocations and
uses of funds with no legal personality,
specific budgets and unjustified ear-
marked accounts .
Fragmentation of central government resources
for funding public policies in 2019
Source: Cour des comptes
This fragmentation of resources for
funding public policies implemented
by
the
central
government
has
reduced the scope of the French
National
Assembly’s
authority
by
focussing discussions exclusively on
budgetary allocations included in the
central government’s general budget
priorities .
While
some
exceptional
funding
may be justified, some of it
may be due to a desire to circumvent
the
restraints
placed
on
central
government expenditure or to protect
resources .
Ensuring that the central
government’s budget reflects
the principles of unity,
universality and effectiveness
3
Net budgetary expenditure
General budget
€336.1 billion
Including ear-marked
accounts (€5.9 billion)
Specific budgets: €2.3 billion
Special
accounts:
€19.5
billion
Tax expenditure:
€99.4 billion
Allocated taxes
and duties*:
€30.2 billion
Funds without legal
personality**(Not available)
*Taxes and duties allocated to third parties other than local public authorities and social security bodies
** The funds without legal personality section does not reflect the financial challenges
Other resources
16
Summary of the Thematic Public Report of the Cour des comptes
Level of review by the French National Assembly on different budget areas
and level of transparency
* Including local tax reimbursements and rebates
Source: Cour des comptes
2018 data on implementing partners and 2016 data on funds without legal personality.
In order to increase the unity and
completeness of central government
budgets,
the
Cour
des
Comptes
recommends:
•
Expanding
the
scope
of
budgetary
priorities,
by
adding
to the programmes all resources
that help to fund public policies
(such as budgetary resources, tax
expenditure,
levies
on
revenue,
earmarked taxes, special accounts,
funds
without
legal
personality
and any other general exceptional
funding methods);
•
Conducting a methodic and com-
prehensive review of exceptional
funding mechanisms
in order to
evaluate whether they are efficient
and whether they are required .
Ensuring that the central government’s budget
reflects the principles of unity, universality and
effectiveness
17
Summary of the Thematic Public Report of the Cour des comptes
Simulation of a new budgetary priority
Source: Cour des comptes
Despite
the
LOLF,
the
central
government’s budgetary framework
and practices still do little to ensure
that public initiatives are efficient.
Efforts to ensure that public policies
are
efficient
still
receive
far
less
attention
than
concerns
about
maintaining or increasing budgetary
allocations . The expenditure review
processes born out of the LOLF have
produced disappointing results and
the performance analysis has been
inadequate . The increased flexibility
provided
by
aggregating
budget
allocations provided to public sector
managers has produced contrasting
results . Finally, while the data on the
central government’s accounts and
financial
position
have
improved,
they are still both incomplete and, in
particular, not used enough .
In order to improve the efficiency
of central government expenditure
within a refined framework, the Cour
des Comptes proposes:
•
Application of the performance
approach
to
all
public
policy
resources and not just to budgetary
allocations;
•
Strengthening
the
multi-year
approach
for
the
budget
,
by
introducing a three-year enforcement
report on finance acts as part of
Finance Review Acts, for which the
review period would be extended;
• While clarifying the distribution of
performance responsibilities between
the
political
and
administrative
bodies,
ensuring
that
managers
have the operational resources to
perform their
duties, particularly by
reducing the general trend of placing
allocations in reserve;
•
Making better use of accounting
information
while
taking
greater
account of the data relating to how
central
government
assets
are
managed (tangible and intangible
assets, and short-term liabilities) .
Ensuring that the central government’s budget
reflects the principles of unity, universality and
effectiveness
19
Summary of the Thematic Public Report of the Cour des comptes
Audit recommendations
1.
Set out multi-year budget allocations
for public administration expenditure,
broken down into sub-allocations and
accompanied by planning provisions,
and multi-year allocations for new
revenue measures in public finance
programming bills (amendments to the
LOPGFP or new recommendations) .
2.
Supplement the introductory article
in finance acts, by presenting in billions
of current euros, for each year in the
planning period, in addition to forecasts
of the headline and structural balances,
forecasts for public administration
expenditure
and
new
revenue
measures; introduce a summary table
outlining any discrepancies between
performance for the previous year, on
the one hand, and, on the other hand,
the objectives set out in the Planning
Acts (amendments to the LOPGFP or
new recommendations) .
3.
Introduce
expenditure
reviews
and evaluations for public policies,
following the timetable set out in
public
finance
programming
bills
(amendments
to
LOPGFPs
and
repeated recommendations) .
4.
Present planned allocations for years
n+2 and n+3 within each finance act,
per budgetary priority (amendments
to LOLFs and LOPGFPs and new
recommendations) .
5.
Strengthen
monitoring
of
the
degree of realism
of finance acts and
multi-year trajectories, by extending
the remit of the High Council of Public
Finances to cover assessing whether
revenue and expenditure forecasts
are
realistic,
costing
some
new
principal measures and identifying
potential deviations from trajectories
(amendments to LOPGFPs and new
recommendations) .
6.
Based on a government report and
an analysis by the Cour des Comptes,
including an opinion on the central
government’s
financial
position
reflected in the certified accounts
in
particular,
introduce
annual
discussions about public debt and its
sustainability in order to embed multi-
year financial frameworks within long-
term approaches (amendments to
LOPGFPs and new recommendations) .
7.
Create a permanent consultation
body, made up of representatives from
central government, social security
administrations
and
local
public
authorities, bringing together all public
administrations in order to control
public
finances
(amendments
to
LOPGFPs and new recommendations) .
8.
Set
out
rules
for
tax-sharing
arrangements
between
public
administrations,
and
resource
compensation
and
guarantee
arrangements
between
central
government, social security and local
public authorities in public finance
programming
bills
(amendments
to LOPGFPs and Framework Law
for Social Security Financing Acts
(LOLFSS), and new recommendations) .
9.
Overhaul social security finance acts
and change them into compulsory
social protection laws, which should be
extended to cover additional schemes
and
unemployment
insurance
schemes (amendments to LOLFSSs
and repeated recommendations) .
20
Summary of the Thematic Public Report of the Cour des comptes
10.
Enact “best efforts laws” for
social
security,
which
would
be
presented in the spring, just like
Finance Review Acts covering the
central
government’s
budget,
as
well as finance acts in the autumn
focusing on the current and next fiscal
year (amendments to LOLFSSs and
repeated recommendations) .
11.
Hold general discussions on public
revenue, sharing public revenue and
requirements for balancing central
government
and
social
security
budgets, before Social Security Finance
and
Finance
Acts
are
scrutinised
(amendments
to
LOPGFPs
and
LOLFSSs, and new recommendations) .
12.
Group together all assistance of
any type from the central government
to local public authorities (such as
budgetary
allocations,
levies
on
revenue
and
transferred
taxation)
within a new budget priority, and
assess this budget priority as part
of discussions around local finances
in the
French
National Assembly
(amendments to
LOLFs
and
new
recommendations) .
13.
Expand the scope of budget
priorities
and
programmes
by
including the entire range of different
resources that help to fund public
initiatives and review the usefulness of
funding mechanisms that derogate to
the principles of unity and universality
(such as tax expenditure, implementing
partners, earmarked taxes and funds
without legal personality) over a period
of three to five years (amendments to
LOLFs and new recommendations) .
14.
Discontinue special accounts
and specific budgets where there is
no evidence that the nature of their
expenditure require deviations from
general budgetary rules (repeated
recommendations) .
15.
In
order
to
improve
the
medium-term evaluation of policies
implemented,
introduce
a
three-
year enforcement report on top of
the Finance Review Acts for central
government budgets (amendments
to LOLFs and new recommendations) .
16.
Hold managers more accoun-
table over infra-annual budgetary
contingencies by gradually reducing
credit freezes, and, at the same time,
increase allocations for accidental
and unforeseeable expenditure in
order to cover larger contingencies,
by setting out precise rules for using
allocations (new recommendations) .
Audit recommendations