Posted Jul 22, 2022, 6:03 AM
The drafting of the Stability Program which will be sent to the European Commission in mid-August has rarely been so delicate. The document unveiled on Thursday, which outlines the budgetary path of Emmanuel Macron’s new five-year term, was produced in an “uncertain economic context, marked by downside risks”, insisted the Minister of the Economy, Bruno Le Maire.
Closure of the Chinese market, probable cut in Russian gas, American slowdown and, now, instability in Italy following the departure of the President of the Council Mario Draghi: there is no shortage of factors likely to further deteriorate the macroeconomic scenario.
It is by taking into account all these hazards that Bercy anticipates a slowdown in growth to 1.4% next year against 2.5% this year, before a gradual rise to 1.8% in 2027.
This return to 1.8% will be possible “thanks to the economic reforms carried out by our majority”, assured the Minister of the Economy, citing the pension reform, the reduction in production taxes, the reforms of education and professional training or even the continuation of the transformation of unemployment insurance and the deployment of the “France 2030” investment plan.
Bruno Le Maire also promised that his government’s measures in favor of “the valorization of work” would make it possible to achieve full employment in 2027. An unemployment rate of 5% at the end of the five-year period is written black and white in the document for Brussels. “This has never been done in more than half a century,” recalls the minister.
Above all, in line with the commitments made last year, Bercy promises to control public spending. The overall increase will be contained to 0.6% excluding inflation per year on average, by 2027, ie the “lowest level ever seen in twenty years”, insists Bercy.
A very ambitious objective, even if it does not include crisis and recovery measures. On the other hand, are included the expenses linked to the “purchasing power” package (energy shield, revaluation of pensions and social minima, rebates on fuel, etc.), currently being voted on in Parliament.
For the record, the forecasts sent to Brussels in 2021 showed an increase in public spending limited to +0.7% per year, which had already raised eyebrows.
Efforts will mainly focus on the State and local communities. The first will have to reduce its expenses by 0.4% per year on average. At this stage, the savings items are not known. They will be detailed at the start of the school year.
Communities will see their operating expenses reduced by 0.5% per year, but Bercy insists that they benefit from the very good performance of tax revenues and inflation indexing mechanisms. The ministry remains deaf to the requests of certain deputies to ensure that the State compensates for the revaluation of the point of index of the civil servants and that of the RSA. Communities experiencing difficulties may be supported on a case-by-case basis.
The Minister of the Economy affirmed it, even if “the expenses must progress more slowly than the growth”, the trajectory fixed in the document for Brussels is not synonymous with austerity. Alongside the regime imposed on the State and communities, social spending will increase “to meet the commitments of Ségur, the hospital plan, the emergency plan”.
Gesture on successions
In the end, and as Bercy has already indicated, the budget deficit would drop below 3% of GDP in 2027 “whatever happens”. Debt would begin to decline from 2025: debt would amount to 112.5% of GDP at the end of the five-year term, against 111.9% this year, but after peaking at 113.3% in three years.
On tax cuts, the other “marker” of government policy put forward by the minister, the next five years will be less prosperous. The drop in production taxes, all at once, next year, for 8 billion euros, constitutes the biggest part. Regarding the gesture on inheritances and donations promised by Emmanuel Macron during the campaign, Bercy indicates that he “will be able to initiate it from 2023 but not everything will be done in 2023”.