The High Council of Public Finances was referred by the Government on October 2, 2024, on the macroeconomic and public finances forecasts, the coherence of the introductory article of the budget bill (PLF) and the social security financing bill (PLFSS) for 2025, in light of the multi-year guidelines for structural balance and public administration expenditures, as well as the realism of the revenue and expenditure forecasts contained in these two drafts. This referal was accompanied by responses to the questionnaires sent by the High Council to the relevant administrations.
The French Government has referred draft budget and social security financing bills for 2025 to the High Council of Public Finance. These confirm a second consecutive year of deterioration in the public balance for 2024 (forecast at 6.1 points of GDP), and forecast a reduction in the deficit to 5.0 points of GDP in 2025 thanks to a massive fiscal adjustment in 2025 (1.1 point of GDP). This would mark a trend reversal compared to the last two years.
The High Council notes that the public deficit for 2024, forecast at 4.4 points of GDP in the Finance Bill for 2024, then at 5.1 points of GDP in the Stability Program, is now forecast at 6.1 points, representing a deviation of 1.7 point of GDP from the initial forecast and a deterioration of 0.6 point compared to 2023. He stresses the need, reinforced by the major slippages in public finances in 2023 and 2024, to adopt cautious assumptions, particularly with regard to revenue forecasts or slowing local authority spending, when there are no robust mechanisms in place to do so. Finally, he regrets that the preparation of the draft budget bill and the draft social security financing bill for 2025 was not accompanied by more effective measures to curb spending in the second half of 2024.
The High Council considers the Government's forecasts for growth (1.1%), payroll (2.9% in the nonfarm market sectors) and inflation (2.1%) for 2024 realistic. It considers that the revenue, expenditure and hence public balance forecasts for 2024 are still subject to considerable uncertainty, but are consistent with the accounting and budgetary information available and with the macroeconomic scenario.
In contrast, it considers the macroeconomic scenario for 2025 to be fragile overall.
The growth forecast for 2025 (1.1%) initially appears a little high, given the restrictive stance of the associated public finance scenario, which translates in particular into a downturn in public demand and measures to increase compulsory levies by up to one point of GDP. To offset this restrictive impact, the growth forecast for 2025 is based on favourable assumptions for world trade, business investment and a fall in the household savings rate, which would correspond to a marked acceleration in activity without budgetary adjustment. Despite the support that lower interest rates could provide, such an acceleration appears optimistic in view of the indications given by the available business surveys.
The wage bill forecast for 2025 (2.8% in the nonfarm market sectors) is somewhat optimistic, due to both the employment forecast, in line with the assessment of GDP, and the average wage per head. Finally, the inflation forecast (+1.8%) seems a little high, given the scale of the disinflationary trend observed since the beginning of the year.
With regard to the realism of the revenue and expenditure forecasts on which the draft budget bill and the draft social security financing bill for 2025 are based, the High Council notes that, despite its requests, the information it has been provided with is not sufficient to assess the very substantial measures planned to increase compulsory levies and curb spending. Furthermore, the balance presented in the introductory article of this draft bill (-5.2 points of GDP) is, for the first time, different from the one on which the High Council is asked to give its opinion (5.0 points of GDP).
The High Council notes that the structural adjustment of 1.2 point of GDP in 2025 implies a structural effort of 1.4 point (€42 bn), given the negative impact of 0.2 point of spontaneous growth in compulsory levies, at constant legislation, lower than that of GDP. This effort is based 70% on increases in compulsory levies (€30 bn, or one point of GDP) and 30% on expenditure (€12 bn, or 0.4 point of GDP).
These proportions differ from those used by the French Government, which, on the basis of different calculation methods, estimates the budgetary consolidation effort at €60 bn, broken down into €40 bn in spending cuts and €20 bn in tax increases.
According to Government forecasts, the debt-to-GDP ratio is set to start rising again in 2024 and 2025, returning to the peak reached during the health crisis, at almost 115 points of GDP. The medium-term sustainability of public finances calls for heightened vigilance and immediate, sustained efforts over the long term. It is imperative that France stays on track with its medium-term budget and structural plan, in order to keep control of its public finances and debt, while financing priority investments and ensuring that its growth potential is not overly affected.