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 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 Cour des comptes – Situation and outlook on French public finances 2

AN INCOMPLETE RECOVERY IN 2019 Cour des comptes – La situation et les perspectives des finances publiques 06/07/2020 3

SINCE 2008, A SIGNIFICANT INCREASE IN MANDATORY LEVIES (ML) WAS FOLLOWED BY A SLOW DECLINE IN MANDATORY LEVIES (ML). Cumulative effect of new measures in ML (in GDP points) 2,6 2,5 2,5 2,4 2,3 2,1 1,7 1,2 1,0 -0,1 Excluding -0,5 transformation of CICE and effect of France -1,1 -1,3 Compétences ’ consolidation scope 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Cour des comptes 06/07/2020 Cour des comptes – Situation and outlook on French public finances 4

SINCE 2007, PUBLIC SPENDING IS INSUFFICIENTLY CURTAILED Breakdown of the evolution of public expenditure from 2007 to 2019 (in GDP points, excluding tax credit) Social benefits: +2,5 +2 GDP points Grants and other operating expenses: +0,7 Changes in consolidation scope: +0,4 Payroll: -0,1 Investments : -0,3 Interest expense: -1,2 Source: Cour des comptes based on Insee 06/07/2020 Cour des comptes – Situation and outlook on French public finances 5

IN 2019, A GENERAL GOVERNMENT DEFICIT OF 3 POINTS OF GDP, WITHOUT STRUCTURAL IMPROVEMENT General government balance (GDP points) 0,0 -1,0 The structural -2,0 deficit remains -3,0 unchanged at 2.2 -4,0 points of GDP as in 2018. -5,0 Transformation of CICE (0.9 -6,0 point of GDP) -7,0 in 2019 -8,0 2000 2003 2006 2009 2012 2015 2018 Source: Cour des comptes based on Insee 06/07/2020 Cour des comptes – Situation and outlook on French public finances 6

IN 2019, LIMITED INCREASE IN REVENUE DUE TO NEW MEASURES Evolution of mandatory levies in 2019 at constant scope Effect of GDP growth in value: +29,1 bn € ML evolution in 2019 : Elasticity effect: +6,9 bn € +6,1 bn € Effect of new measures: (or +0,6 %) -29,9 bn € of which - € 20bn for the transformation of the CICE and - € 9.9bn for other measures Source: Ministry for Economy and Finances, Cour des comptes 06/07/2020 Cour des comptes – Situation and outlook on French public finances 7

IN 2019, MORE DYNAMIC PUBLIC SPENDING Change in public expenditure at constant scope (in %) 2,8% 2,5% 2,3% 2,0% 1,9% 1,7% 1,4% 0,7% Moy. 2011-2016 2017 2018 2019 Government expenditure excluding tax credits Public expenditure controllable by public authorities Source : Cour des comptes based on Insee 06/07/2020 Cour des comptes – Situation and outlook on French public finances 8

PERSISTENT DEFICITS, A DEBT THAT IS NOT SHRINKING Public deficit and structural deficit of French and German debt France Source: Cour des comptes based on the European Commission and Eurostat 06/07/2020 Cour des comptes – Situation and outlook on French public finances 9

AN UNPRECEDENTED SHOCK FOR PUBLIC FINANCES IN 2020 Cour des comptes – La situation et les perspectives des finances publiques 06/07/2020 10

MASSIVELY REVISED DEFICIT FORECASTS Public balance 2020: transition from the LFI to the PLFR3 (in € bn and GDP points) -53,5 bn €  Rather cautious -250 assumption of 11% bn € -2,2 GDP -133 points GDP contraction bn € Upward  Revenues = 1st revision of expenses revision factor Downward -64 Support costs = 2nd revision of bn € factor 2020 revenues -11,4 GDP points Source: Cour des comptes 06/07/2020 Cour des comptes – Situation and outlook on French public finances 11

A FALL IN REVENUES REFLECTING THE GDP CONTRACTION Evolution of mandatory levies in 2020 (PLFR 3) Other effects : +2 bn € Of which + € 0.7bn for elasticity, + € 13.6bn for the impact of the CICE transformation and - € 12.3bn for other measures Effect of GDP contradiction in value: Evolution of ML -101,6 bn € in 2020 : -103,5 bn € (or -9,5 %) Source: Cour des comptes 06/07/2020 Cour des comptes – Situation and outlook on French public finances 12

EXTENSIVE SUPPORT MEASURES Main categories of support measures (in bn € ) Guarantee measures (with no 2020 effect on the deficit); 327,5 Partial activity 30,8 Solidarity Fund for enterprises (APU 9,0 Measures share) and bonus for deemed to have the self-employed Measures with an no impact on the deficit; 77.5 impact on the Exceptional health 8,0 deficit; 57.5 expenses Exemptions from social security contributions 9,8 and sectoral support measures Source: Cour des comptes 06/07/2020 Cour des comptes – Situation and outlook on French public finances 13

A VIGOROUS INCREASE IN SPENDING IN RESPONSE TO THE CRISIS Change in the value of public expenditure (excluding tax credits) 6,4 % in total  Overall balanced risks on usual expenses 4,2 %  Risks difficult to quantify on capital injections and guarantees 2,2 % 1,7 % Mean 2020 2011-2019 (PLFR 3) Source: Cour des comptes 06/07/2020 Cour des comptes – Situation and outlook on French public finances 14

A JUMP IN DEFICITS AMONG FRANCE'S PARTNERS IN 2020 Public debt (in GDP points) Government deficit (in GDP points) 4 160 2 140 0 120 -2 100 -4 80 -6 60 -8 40 -10 20 -12 0 2019 2020 2019 2020 Sources: Cour des comptes based on the European Commission 06/07/2020 Cour des comptes – Situation and outlook on French public finances 15

THE CHALLENGE OF DEBT SUSTAINABILITY AFTER 2020 Cour des comptes – La situation et les perspectives des finances publiques 06/07/2020 16

A MASSIVE BUT VARIABLE IMPACT OF THE CRISIS ON PUBLIC FINANCES DEPENDING ON THE SCENARIOS GDP volume trajectory in three Government balance in each of the scenarios (in € bn) three scenarios (in GDP points) 2 700 0% 2 600 -2% 2 500 -4% 2 400 -6% 2 300 -8% 2 200 -10% 2 100 2 000 -12% 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 scénario de rattrapage scénario de rattrapage scénario de perte limitée scénario de perte limitée scénario de faiblesse persistante scénario de faiblesse persistante Source: Cour des comptes Cour des comptes – Situation and outlook on French public finances 17

THE RISK OF UNCONTROLLED PUBLIC DEBT Evolution of public debt following three scenarios (in GDP points) 150% 140% 130% 120% 110% 100% 90% 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 scénario de rattrapage scénario de perte limitée scénario de faiblesse persistante Source: Cour des comptes 06/07/2020 Cour des comptes – Situation and outlook on French public finances 18

THE PRINCIPLES OF A STRATEGY FOR THE REPAIR OF PUBLIC FINANCES (1/3) TODAY TOMORROW Any additional "stimulus" measures must be targeted and temporary High debt, low rates: (sunset clauses) avoid making a hasty fiscal adjustment but A European initiative avoid putting it off can contribute to The structural indefinitely recovery without adjustment adding to the trajectory must be national debt undertaken in a timely manner Sustainable public finances 06/07/2020 Cour des comptes – Situation and outlook on French public finances 19

THE PRINCIPLES OF A STRATEGY FOR THE REPAIR OF PUBLIC FINANCES (2/3) High initial effort Constant rate of followed by a stop structural effort Medium-term strategy + defined without undue delay in the LPFP Set consistent targets for « Budgetary expenditure and new strain » measures (revenue) Efforts to be sustained until the medium-term objective has been reached 06/07/2020 Cour des comptes – Situation and outlook on French public finances 20

THE PRINCIPLES OF A STRATEGY FOR THE REPAIR OF PUBLIC FINANCES (3/3) Prioritizing A recovery in Identifying investments public finances priority by ensuring to be achieved spending their over time effectiveness 06/07/2020 Cour des comptes – Situation and outlook on French public finances 21

SITUATION AND OUTLOOK ON FRENCH PUBLIC FINANCES Tuesday, 30th June 2020