OPINION: 50 years of French state over-spending won’t be solved in one Budget

I’ve been trying to understand the finances of the French state – writes John Lichfield. If I failed, I am not alone.

The spending cuts will include €4 billion saved by delaying until July the annual, inflation-linked rise in state pensions due in January. Is this a mugging of old folks? Is it Michel Barnier’s equivalent of Keir Starmer’s raid on winter fuel allowances for UK pensioners?
The Left and Far Right will say so. In truth, French pensioners got a bumper increase (5.3 percent) in January this year because the official inflation forecast was exaggerated. Some form of adjustment is reasonable at a time when French state finances are in serious trouble.
Half of all French state spending goes on welfare, including pensions. This is covered by a separate Social Security budget which is outside day-to-day government control but still counts against the deficit.
One third of all public money spent in France, around €500 billion a year, goes on pensions – as much as the whole of the direct government budget for everything else, from education to defence, to transport, to paying for the national debt.
Advertisement
All the same, the pension grab – easy to understand, easy to turn into political attack lines – will be one of the hottest issues in the parliamentary budget war which is about to begin. Michel Barnier may have to abandon or soften this part of his deficit-cutting plan if he wants to avoid being booted out by a censure motion next month.
He easily survived (by 92 votes) a first censure motion on Tuesday tabled by the four parties in the left-wing alliance, the New Popular Front. That was predictable.
By insisting on going ahead when they knew that they would lose, the Left has arguably strengthened Barnier’s position. Before the vote, he was a minority Prime Minster at the head of a ramshackle centre and centre-right coalition. Afterwards, he is a Prime Minster with at least the passive support, or tolerance, of a majority of the 577 members of the National Assembly.
That includes, crucially and some would say embarrassingly, the 142 deputies of Marine Le Pen’s Far Right. She still has the power (in effect presented to her by the Left) to bring down Barnier whenever she wants.
All the indications are that she will not move against the PM before next year. She will allow the 2025 budget to go through one way or another. She will demand concessions on pensions payments, electricity bills and other things. She will pose as a woman of the people without making any serious proposal to solve the deficit crisis.
Advertisement
But who will? No French government has balanced the state budget since the mid-1970s. In his first couple of years, Emmanuel Macron reduced the deficit and even brought it within the Eurozone ceiling of 3 percent of GDP. The yellow vests, Covid and the Ukraine war ended all that.
In 2017-2024, France’s accumulated state debt increased from 100 percent of GDP to 112 percent or from circa €2,000 billion to €3,200 billion.
To be fair to Macron (unfashionable as that is), over two thirds of the increase can be attributed to “all that it takes” spending to keep the economy alive during the Covid pandemic and then consumer subsidies to soften the impact of energy and other price rises after the Russian invasion of Ukraine. No one much complained about this spending at the time.
A study by the left-leaning French economic think-tank OFCE estimates that 69 percent of the increase in French debt since 2017 can be attributed to Macron’s actions to shield France from global crises. But what about the rest?
Macron’s cuts in business and other taxes had a positive effect on job creation but the impact on growth, and tax revenues, has been less than expected. Macron came to office promising a revolution in French governance but he rarely addressed the debilitating share of GDP taken by public spending (55 percent when he came to office, now almost 57 percent).
Like his predecessors, he nibbled at the edges of the problem. Now, after 50 years of state overspending, the twin crises of 2020-22 and the lowish growth of the last two years have left France with a deep debt crisis but not yet a calamity.
Paying interest on the debt costs circa €52 billion a year, the same as the education budget. If the relatively low global interests rates were to explode, France would be confronted with an Italian or Greek-type debt emergency. Paying for the debt already costs each French person €8,000 a year.
Advertisement
Barnier says that he has only grasped the severity of the problem since he became Prime Minister a month ago. Let’s be fair to Barnier too. He has not had the time, and has not got the political strength, to adopt a long-term approach to a deficit problem a half century in the making.
He said in his inaugural speech to the assembly last week that France must learn to do “more with less”. All comparative studies with other EU countries suggest that France currently does less with more. It has bigger state spending than most EU countries without better outcomes in, say, education or health.
The country is over-administered. There are three tiers of local government PLUS an almost colonial, national government administration of the provinces through the prefectoral system. Other costly anomalies exist.
No government in the last half century has made a systematic or prolonged attempt to give the country better value for its money. The Barnier deficit-cutting budget – for all the sound and fury of the next couple of months – is largely a repetition of what has gone before: necessary, well-meaning but also opaque and misleading.
Plus ça change.

#John Lichfield
#taxes
#Money
#Opinion and Analysis

Comments

Join the conversation in our comments section below. Share your own views and experience and if you have a question or suggestion for our journalists then email us at [email protected].
Please keep comments civil, constructive and on topic – and make sure to read our terms of use before getting involved.

Please log in here to leave a comment.

See Also

Before the unveiling on Thursday of the “toughest French budget for decades”, I crept into the €1.5 trillion-a- year labyrinth of taxes and public spending with calculator in hand and cold, wet towel wrapped around my head.
My first, preliminary finding is: “Aaargh!” Nothing is quite as it seems. Much of what we are told, by all sides, is misleading.
Michel Barnier’s 2025 budget is supposed to represent clear-headed, new approach after years of budgetary obfuscation by all governments, left, right and centre. It is another short-term fix.
The 2025 budget is meant to lop €60 billion off the French budget deficit next year. Two thirds is supposed to come from spending cuts and one third from increased taxes.
These are book-keeping figures, based on the difference between the 2025 budget and where an unchanged trend of recent French financial excess might have taken us. The actual, year-on-year cuts will be lower (about €33 billion not €40 billion) and the increased tax haul will be higher (€24 billion not €20 billion).
In cash terms, the 2025 budget, billed by government and opposition alike as the harshest in recent memory, will, erm, increase public spending by 2.1 percent.
It is still a pretty unpleasant budget as French budgets go.
The low-tax dogma of the Macron years since 2017 will end symbolically (and really for some). Big companies will pay around 8 percent more corporation tax; wealthy families will pay more income tax; there will probably be increased taxes on air-fares and electricity.
READ ALSO Who will be hit by Barnier’s tax hikes?
The spending cuts will include €4 billion saved by delaying until July the annual, inflation-linked rise in state pensions due in January. Is this a mugging of old folks? Is it Michel Barnier’s equivalent of Keir Starmer’s raid on winter fuel allowances for UK pensioners?
The Left and Far Right will say so. In truth, French pensioners got a bumper increase (5.3 percent) in January this year because the official inflation forecast was exaggerated. Some form of adjustment is reasonable at a time when French state finances are in serious trouble.
Half of all French state spending goes on welfare, including pensions. This is covered by a separate Social Security budget which is outside day-to-day government control but still counts against the deficit.
One third of all public money spent in France, around €500 billion a year, goes on pensions – as much as the whole of the direct government budget for everything else, from education to defence, to transport, to paying for the national debt.
All the same, the pension grab – easy to understand, easy to turn into political attack lines – will be one of the hottest issues in the parliamentary budget war which is about to begin. Michel Barnier may have to abandon or soften this part of his deficit-cutting plan if he wants to avoid being booted out by a censure motion next month.
He easily survived (by 92 votes) a first censure motion on Tuesday tabled by the four parties in the left-wing alliance, the New Popular Front. That was predictable.
By insisting on going ahead when they knew that they would lose, the Left has arguably strengthened Barnier’s position. Before the vote, he was a minority Prime Minster at the head of a ramshackle centre and centre-right coalition. Afterwards, he is a Prime Minster with at least the passive support, or tolerance, of a majority of the 577 members of the National Assembly.
That includes, crucially and some would say embarrassingly, the 142 deputies of Marine Le Pen’s Far Right. She still has the power (in effect presented to her by the Left) to bring down Barnier whenever she wants.
All the indications are that she will not move against the PM before next year. She will allow the 2025 budget to go through one way or another. She will demand concessions on pensions payments, electricity bills and other things. She will pose as a woman of the people without making any serious proposal to solve the deficit crisis.
But who will? No French government has balanced the state budget since the mid-1970s. In his first couple of years, Emmanuel Macron reduced the deficit and even brought it within the Eurozone ceiling of 3 percent of GDP. The yellow vests, Covid and the Ukraine war ended all that.
In 2017-2024, France’s accumulated state debt increased from 100 percent of GDP to 112 percent or from circa €2,000 billion to €3,200 billion.
To be fair to Macron (unfashionable as that is), over two thirds of the increase can be attributed to “all that it takes” spending to keep the economy alive during the Covid pandemic and then consumer subsidies to soften the impact of energy and other price rises after the Russian invasion of Ukraine. No one much complained about this spending at the time.
A study by the left-leaning French economic think-tank OFCE estimates that 69 percent of the increase in French debt since 2017 can be attributed to Macron’s actions to shield France from global crises. But what about the rest?
Macron’s cuts in business and other taxes had a positive effect on job creation but the impact on growth, and tax revenues, has been less than expected. Macron came to office promising a revolution in French governance but he rarely addressed the debilitating share of GDP taken by public spending (55 percent when he came to office, now almost 57 percent).
Like his predecessors, he nibbled at the edges of the problem. Now, after 50 years of state overspending, the twin crises of 2020-22 and the lowish growth of the last two years have left France with a deep debt crisis but not yet a calamity.
Paying interest on the debt costs circa €52 billion a year, the same as the education budget. If the relatively low global interests rates were to explode, France would be confronted with an Italian or Greek-type debt emergency. Paying for the debt already costs each French person €8,000 a year.
Barnier says that he has only grasped the severity of the problem since he became Prime Minister a month ago. Let’s be fair to Barnier too. He has not had the time, and has not got the political strength, to adopt a long-term approach to a deficit problem a half century in the making.
He said in his inaugural speech to the assembly last week that France must learn to do “more with less”. All comparative studies with other EU countries suggest that France currently does less with more. It has bigger state spending than most EU countries without better outcomes in, say, education or health.
The country is over-administered. There are three tiers of local government PLUS an almost colonial, national government administration of the provinces through the prefectoral system. Other costly anomalies exist.
No government in the last half century has made a systematic or prolonged attempt to give the country better value for its money. The Barnier deficit-cutting budget – for all the sound and fury of the next couple of months – is largely a repetition of what has gone before: necessary, well-meaning but also opaque and misleading.
Plus ça change.

Trending now