Friday, January 18, 2019

explosive proposals to lower public spending

Retreats, health, reception and assistance to people, support for businesses: the public expenditure reduction proposed by France Stratégie could provoke fierce controversy. While Emmanuel Macron launched the Great Debate on January 15, questions are multiplying on the role of taxation and public spending. On the chain LCI this Friday morning, the boss of Medef Geoffroy Roux de Bezieux said that the weight of public spending should be the subject number "a" discussions. The head of the employers' organization has called for greater efforts to reform the state. "We spend too much money in France, I think it must be the subject of Act 2," said Roux de Bezieux, saying that the country could "not continue like this".

"For 40 years, the weight of the state has increased roughly from 40% to 58% of the national wealth", added the head of the main French employers' organization. Among the four themes selected by the government are taxation and public spending. The executive has also prepared a teaching sheet on these two topics whose purpose is to explain the major issues. To try to feed this debate, France Strategy has just published a note entitled, "Where to reduce the weight of public spending?" in which the organization returns to the main items of expenditure in a country where the public power plays a major role.

Pensions, the main item of expenditure

The two authors of the note have established a European comparison of public spending by major domains as a percentage of gross domestic product (GDP). Eleven countries have been taken into account in the work of France Stratégie. France comes in first place. In 2016, public expenditure accounted for 55.7% of GDP in France (including 0.8 CICE point). "This is 8.1 points higher than the average of the sampled countries (and 13 points higher than the EU average), but only 3.2 points higher than the average of the countries in the sample. Nordic countries" stresses the organization attached to the Prime Minister.

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Among the major items selected are redistributive monetary benefits (pensions and old age, social assistance) that can explain much of the gap with other countries. In France, retirement expenses represent "nearly 14 GDP points and are 3.4 points above average. " Obviously, these comparisons may have limits given the degree of socialization of certain expenses in France compared to other countries. What the experts remind us:

"Where France has made the choice of a pay-as-you-go pension system, almost entirely socialized and compulsory, some countries have opted for hybrid schemes with a private and optional component (at least at the branch level), often in terms of capitalization. , more important [...] expenses related to these plans are not included in public expenditures, for even if the contributions used to finance them are in practice of the same binding nature for the employee and / or the employer as compulsory deductions, a choice exists at the level of the branch and the collective agreement. "

Important measures of support to the economy

The other item of expenditure that explains this gap concerns the support mechanisms for the economy. All subsidies and transfers and investments (non-social and sovereign) represent about 7% of GDP against 4.5% on average in the other countries considered in the study and 4.9% in the North . In addition to the significant weight of the tax credit for competitiveness and employment (CICE), the drafters mention the research tax credit (more than 5 billion), support for renewable energy (more than 5 billion), credits Taxes for home-based employment.

If the experts do not necessarily point to a particular expense, they point out that "subsidy schemes on products or production can be seen as a means of offsetting excessive taxation of factors of production". Since coming to power, Emmanuel Macron has regularly relaunched the debate on production taxes. But in view of the additional expenses generated by the transformation of the CICE into a permanent social security contribution reduction or the announcements of December 10th to support the purchasing power of low-wage workers and low-income pensioners, room for maneuver seems limited. Already in the spring of 2018, Prime Minister Edouard Philippe had ruled out new production tax cuts for companies before 2020. He had justified this announcement by expressing "a constrained budget environment" and the need for consultation with local authorities.

> Read also: Taxation of production: the government revises its ambitions downward

Finally, if after the crisis of 2008, the interest of the debt remained a relatively important budgetary post during some years, recalls the study, they have decreased since. They accounted for 2.8% of GDP in 2008 compared to 1.9% in 2016 (and 2.1% in other countries in the same year).

Risky scenarios

To achieve the goal of reducing public spending by three points at the end of the five-year period, the body attached to the Prime Minister has developed three scenarios that could provoke heated debate. The first is to drastically reduce spending on support for the economy (investments, support and transfers) and local government spending. In the current context of "yellow vests" and exacerbated tensions between the government and local elected officials, this proposal seems risky for the government, which faces an acute challenge. The second proposal is based on cuts in health spending without affecting those dedicated to hospitals.

The cuts would mainly concern the field of market health and medicines. Finally, the third scenario, presented as "more balanced", Assumed "to extend savings to social benefits in cash" (pensions, unemployment, family, poverty, housing), as well as "reception and assistance to people" (early childhood, disability, dependency). In this regard, the France Strategy note considers that "The decisions taken by the government to partially deindex pensions in 2019 and 2020, as well as the desire to better control unemployment insurance spending, go in this direction." Here again, the government could still face the anger of pensioners who have already, on several occasions, demonstrated in the year 2018. The de-indexation of pensions has fueled the discontent of the older ones. If the executive declined on the CSG for retirees between 1.600 euros and 2.000 euros in December, the sources of tension remain visible.

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