SITUATION AND OUTLOOK ON FRENCH PUBLIC FINANCES Tuesday, 30th June - - PowerPoint PPT Presentation

SITUATION AND OUTLOOK ON FRENCH PUBLIC FINANCES

Tuesday, 30th June 2020

EXCEPTIONAL CIRCUMSTANCES

Cour des comptes – Situation and outlook on French public finances

2

An evolving situation

• Massive revisions to economic assumptions and public finance

forecasts

• Two Amending Finance Acts and a third draft of Amending Finance

Act

A tailored report

• An analysis of the prospects centred on the issue of public debt

sustainability

06/07/2020

AN INCOMPLETE RECOVERY IN 2019

SINCE 2008, A SIGNIFICANT INCREASE IN MANDATORY LEVIES (ML) WAS FOLLOWED BY A SLOW DECLINE IN MANDATORY LEVIES (ML).

Cour des comptes – Situation and outlook on French public finances

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Cumulative effect of new measures in ML (in GDP points)

Source: Cour des comptes

06/07/2020

• 0,5
• 1,3
• 1,1
• 0,1

1,0 2,4 2,6 2,5 2,3 2,5 2,1 1,2 1,7

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Excluding transformation of CICE and effect of France Compétences’ consolidation scope

SINCE 2007, PUBLIC SPENDING IS INSUFFICIENTLY CURTAILED

Cour des comptes – Situation and outlook on French public finances

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Breakdown of the evolution of public expenditure from 2007 to 2019 (in GDP points, excluding tax credit)

Source: Cour des comptes based on Insee

Social benefits: +2,5 Grants and other operating expenses: +0,7 Changes in consolidation scope: +0,4 Payroll: -0,1 Investments : -0,3 Interest expense: -1,2

+2 GDP

points

06/07/2020

IN 2019, A GENERAL GOVERNMENT DEFICIT OF 3 POINTS OF GDP, WITHOUT STRUCTURAL IMPROVEMENT

Cour des comptes – Situation and outlook on French public finances

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General government balance (GDP points)

Source: Cour des comptes based on Insee

• 8,0
• 7,0
• 6,0
• 5,0
• 4,0
• 3,0
• 2,0
• 1,0

0,0 2000 2003 2006 2009 2012 2015 2018 Transformation

• f CICE (0.9

point of GDP) in 2019

06/07/2020

The structural deficit remains unchanged at 2.2 points of GDP as in 2018.

IN 2019, LIMITED INCREASE IN REVENUE DUE TO NEW MEASURES

Cour des comptes – Situation and outlook on French public finances

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Evolution of mandatory levies in 2019 at constant scope

Source: Ministry for Economy and Finances, Cour des comptes

Effect of GDP growth in value: +29,1 bn€ Elasticity effect: +6,9 bn€ Effect of new measures:

• 29,9 bn€
• f which -€20bn for the transformation
• f the CICE and -€9.9bn for other

measures

ML evolution in 2019 : +6,1 bn€ (or +0,6 %)

06/07/2020

IN 2019, MORE DYNAMIC PUBLIC SPENDING

Cour des comptes – Situation and outlook on French public finances

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Change in public expenditure at constant scope (in %)

1,7% 2,5% 0,7% 2,3% 1,9% 2,0% 1,4% 2,8%

• Moy. 2011-2016

2017 2018 2019

Source : Cour des comptes based on Insee

06/07/2020

Government expenditure excluding tax credits Public expenditure controllable by public authorities

PERSISTENT DEFICITS, A DEBT THAT IS NOT SHRINKING

Cour des comptes – Situation and outlook on French public finances

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Public deficit and structural deficit of France

Source: Cour des comptes based on the European Commission and Eurostat

French and German debt

06/07/2020

AN UNPRECEDENTED SHOCK FOR PUBLIC FINANCES IN 2020

MASSIVELY REVISED DEFICIT FORECASTS

Cour des comptes – Situation and outlook on French public finances

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Public balance 2020: transition from the LFI to the PLFR3 (in €bn and GDP points)

Source: Cour des comptes

06/07/2020

• Rather cautious

assumption of 11% GDP contraction

• Revenues = 1st

revision factor Support costs = 2nd factor

• 250

bn€

• 53,5

bn€

• 133

bn€

• 64

bn€

• 11,4 GDP

points

• 2,2 GDP

points Upward revision of expenses Downward revision of 2020 revenues

A FALL IN REVENUES REFLECTING THE GDP CONTRACTION

Cour des comptes – Situation and outlook on French public finances

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Evolution of mandatory levies in 2020 (PLFR 3)

Source: Cour des comptes

Other effects : +2 bn€ Effect of GDP contradiction in value:

• 101,6 bn€

Evolution of ML in 2020 :

• 103,5 bn€

(or -9,5 %)

Of which +€0.7bn for elasticity, +€13.6bn for the impact of the CICE transformation and - €12.3bn for other measures

06/07/2020

EXTENSIVE SUPPORT MEASURES

Cour des comptes – Situation and outlook on French public finances

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Main categories of support measures (in bn€)

Measures with an impact on the deficit; 57.5 Measures deemed to have no impact on the deficit; 77.5 Guarantee measures (with no 2020 effect on the deficit); 327,5 Source: Cour des comptes

Partial activity 30,8 Solidarity Fund for enterprises (APU share) and bonus for the self-employed 9,0 Exceptional health expenses 8,0 Exemptions from social security contributions and sectoral support measures 9,8

06/07/2020

A VIGOROUS INCREASE IN SPENDING IN RESPONSE TO THE CRISIS

Cour des comptes – Situation and outlook on French public finances

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Change in the value of public expenditure (excluding tax credits)

1,7 % 2,2 % 4,2 % Mean 2011-2019 2020 (PLFR 3) 6,4 % in total

• Overall balanced risks on

usual expenses

• Risks difficult to quantify on

capital injections and guarantees

06/07/2020

Source: Cour des comptes

• 12
• 10
• 8
• 6
• 4
• 2

2 4

2019 2020

20 40 60 80 100 120 140 160

2019 2020

A JUMP IN DEFICITS AMONG FRANCE'S PARTNERS IN 2020

Cour des comptes – Situation and outlook on French public finances

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Government deficit (in GDP points)

Sources: Cour des comptes based on the European Commission

Public debt (in GDP points)

06/07/2020

THE CHALLENGE OF DEBT SUSTAINABILITY AFTER 2020

A MASSIVE BUT VARIABLE IMPACT OF THE CRISIS ON PUBLIC FINANCES DEPENDING ON THE SCENARIOS

Cour des comptes – Situation and outlook on French public finances

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GDP volume trajectory in three scenarios (in €bn) Government balance in each of the three scenarios (in GDP points)

Source: Cour des comptes 2 000 2 100 2 200 2 300 2 400 2 500 2 600 2 700

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

scénario de rattrapage scénario de perte limitée scénario de faiblesse persistante

• 12%
• 10%
• 8%
• 6%
• 4%
• 2%

0%

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

scénario de rattrapage scénario de perte limitée scénario de faiblesse persistante

THE RISK OF UNCONTROLLED PUBLIC DEBT

Cour des comptes – Situation and outlook on French public finances

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Evolution of public debt following three scenarios (in GDP points)

Source: Cour des comptes

06/07/2020

90% 100% 110% 120% 130% 140% 150%

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

scénario de rattrapage scénario de perte limitée scénario de faiblesse persistante

THE PRINCIPLES OF A STRATEGY FOR THE REPAIR OF PUBLIC FINANCES (1/3)

Cour des comptes – Situation and outlook on French public finances

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Sustainable public finances

The structural adjustment trajectory must be undertaken in a timely manner Any additional "stimulus" measures must be targeted and temporary (sunset clauses) A European initiative can contribute to recovery without adding to the national debt

TODAY TOMORROW

06/07/2020

High debt, low rates: avoid making a hasty fiscal adjustment but avoid putting it off indefinitely

THE PRINCIPLES OF A STRATEGY FOR THE REPAIR OF PUBLIC FINANCES (2/3)

Cour des comptes – Situation and outlook on French public finances

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High initial effort followed by a stop « Budgetary strain » Constant rate of structural effort

Medium-term strategy defined without undue delay in the LPFP Set consistent targets for expenditure and new measures (revenue) Efforts to be sustained until the medium-term objective has been reached

+

06/07/2020

THE PRINCIPLES OF A STRATEGY FOR THE REPAIR OF PUBLIC FINANCES (3/3)

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A recovery in public finances to be achieved

• ver time

Identifying priority spending Prioritizing investments by ensuring their effectiveness

Cour des comptes – Situation and outlook on French public finances

06/07/2020

SITUATION AND OUTLOOK ON FRENCH PUBLIC FINANCES

Tuesday, 30th June 2020