The draft French budget for the year 2019, which was presented on Monday 24 September and provides for a nominal government deficit of 2.8% of gross domestic product (GDP), or a possible increase of 0.2 percentage points compared to 2018, is reportedly not in compliance with the rules of the preventative of the Stability and Growth Pact.
“Thanks to these efforts, thanks to the structural choices I have presented to you, all of our commitments will be kept”, said Bruno Le Maire, the French Minister for the economy and finance, speaking in Paris.
Optimism is the order of the day in the French Executive, which stresses that the nominal public deficit should indeed be below the symbolic threshold of 3% of GDP. However, the matter of the structural deficit is expected to be more of a problem.
As France joined the preventative arm of the Pact this year, having come out of the excessive deficit procedure, the French structural deficit needs to fall by 0.6% of GDP a year over the first years (see EUROPE 12047).
However, Paris anticipates that it will reduce the structural deficit by 0.1% in 2018, by making use of all of the flexibility available under the Pact, namely twice 0.25 percentage points of GDP in margin (over one or two years), in just one year. As a result, the French structural deficit will have no option but to decrease by 0.6% of GDP next year.
However, the French government forecasts that it will trim 0.3% of GDP off its structural deficit next year, hence the failure of the draft budget to comply with the rules of the preventative arm of the Stability and Growth Pact.
In an opinion dated 19 September, the French High Council of public finances criticises the methodology used by the finance ministry and considers that the real structural deficit, on the basis of the forecasts of the French government, is more likely to be in the order of 0.2% of GDP next year. It also stresses that the structural adjustments foreseen for 2018 [0.1% of GDP] and 2019 [0.3% of GDP], which will be submitted for the Commission's assessment, are not compliant with the rules of the 'preventative arm' of the Stability Pact.
Changes to the CICE. Among the measures accompanying this draft 2019 budget, it is worth noting that the French government still intends to convert the Crédit d’impôt pour la compétitivité et l'emploi (tax credit for competitiveness and employment; CICE) into long-term reductions in charges, which will lose the State 0.9% of GDP in 2019. The upgrading of social benefits will also be limited to 0.3% next year, so as to redeploy the resources thereby freed up in favour of employment.
Under the growth plank, Paris anticipates GDP growth of 1.7% for both 2018 and 2019. This tallies with the European Commission's forecasts (see EUROPE 12061).
With the government debt ratio currently standing at 98.5% of GDP, the French government anticipates a rate of 98.7% of GDP in 2018 and 98.6% of GDP next year. The aim of the French authorities is to bring this figure down to 92.7% of GDP by 2022. (Original version in French by Lucas Tripoteau)