Open Europe Blog

The French Court of Auditors has published its annual report this morning. It is an absolutely massive document, but we have dug out a few interesting findings and recommendations – many of which do not exactly make for happy reading for French President François Hollande and his government:

    • According to the Court, France’s public deficit for 2012 will “in all likelihood be close” to the target of 4.5% of GDP. However, the report warns that “important uncertainties remain” over the final figure, which is only due to be disclosed at the end of March. Therefore, “a deficit higher than 4.5% of GDP cannot be ruled out.”
    • Unsurprisingly, the Court stresses that the government’s growth forecast for 2013 (+0.8%) is much more optimistic than those made by the IMF, the European Commission and the OECD – which all agree on 0.3%. The 0.5% difference, estimates the Court, could mean 0.25% of GDP increase in the deficit by the end of 2013.
    • Crucially, growth forecasts have an impact on revenue estimates as well – especially when it comes to tax and social security deductions (which the French call prélèvements obligatoires, compulsory deductions). The French government is betting on a 2.6% increase of this type of revenue for this year – again, far too optimistic. Tax and social security deductions, the Court explains, are closely linked to how much the economy grows, and have a significant level of ‘elasticity’ – meaning that they may well be lower than expected even if (and it’s a big if by now) the French economy were actually to grow by 0.8% in 2013.
    • The Court concludes that the structural deficit targets (which are relevant under the fiscal treaty and the so-called Excessive Deficit Procedure) are “attainable”. However, the nominal deficit target of 3% of GDP for 2013 is “very weakened” by the slowing down of the economy. 
    • On the recommendations side, the Court notes that the French government’s deficit reduction effort has relied too much on tax hikes. Therefore, the Court argues, “Stepping up the efforts to rein in spending in the public administration as a whole is now the absolute priority. In fact, the structural [deficit reduction] effort for 2013 is unbalanced: it relies on public spending control for less than 25%, and over 75% on increases in mandatory deductions.” 

    Some fairly damning assessments then, and we have only scratched the surface of the report. This is also not the first time Hollande has faced this type of criticism from the Cour de comptes. The French Economy Ministry has responded to the report, saying the government sticks to its targets for 2012-13, but will “reappraise” its growth forecast in the new stability programme, due to be submitted to the French parliament in mid-April. Could this be the first step towards a public admission that France will miss its 2013 deficit target?           

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