The High Council of Public Finances was consulted by the Government on October 2, 2024, regarding the macroeconomic forecasts underlying France's 2025-2028 medium-term fiscal-structural plan, and the coherence of the proposed programming in relation to the country’s European commitments.
The reform of European economic governance adopted in April 2024 requires the Government to submit a national medium-term fiscal-structural plan (MTP) to the European Commission this autumn, with the aim of putting public debt on a sustainable trajectory. The High Council of Public Finance welcomes the decision by the Government to refer this budget plan to it, although such a referral is only compulsory under European rules from 2032 onwards.
However, the High Council regrets that the information provided by the Government is insufficient to enable it to assess the realism of the multi-year trajectory set out in this MTP. In particular, the Government has not detailed the composition of growth beyond 2025, nor its assumptions on household and corporate income. Nor has it communicated to the High Council the reforms and investments that France would commit to implementing in order to benefit from an extension of the budgetary adjustment period from 4 to 7 years, or indicated how France intends to reduce its public deficit over the plan's horizon. Yet these elements are essential for the High Council to assess the realism of the trajectory. Under these conditions, it is difficult for the High Council of Public Finance to fully fulfil its mission of informing Parliament and the public about the Government's macroeconomic and public finance forecasts.
The main data on which the High Council is in a position to express an opinion is the estimate of potential GDP on which the Government bases its actual growth path.
The High Council notes that the Government's assessment of potential growth, i.e. the growth that the economy would experience in the absence of cyclical shocks, has been revised downwards compared with its previous assessments (1.2% between 2024 and 2028 instead of 1.35%) and set at a slightly lower value thereafter (1.0%). It notes that the Government's assessment of the output gap at the start of the path, which, when negative, suggests that growth will temporarily exceed potential growth, has also been revised in a less favourable direction than the assessment presented in the Stability Programme (-0.6% instead of 1.1% in 2023).
The High Council considers that the new potential GDP scenario, although still somewhat optimistic, is now reasonable, even though it would be necessary to know the details of the reforms and investments and the composition of the budgetary adjustment provided for in this plan in order to fully assess it.
The High Council has little information on which to base its assessment of the macroeconomic scenario. However, it notes that the actual growth scenario is optimistic. Indeed, it assumes that the budgetary adjustment included in the forecast will not prevent it from reaching, and even exceeding at the beginning of the period, potential growth, even if a more accommodating monetary policy stance may partly offset this.
The information available on public finances is even more incomplete and does not allow the High Council to assess the realism of the path presented beyond 2025.
However, the High Council notes that the planned date for the deficit to return to below 3 points of GDP has been shifted by two years, from 2027 in the Stability Programme to 2029 in the medium-term fiscal-structural plan, which seems more realistic.
As a result, the public debt ratio targeted in this plan increases until 2027 and would only begin to fall in 2028. Because of the increase in the level of debt and long-term interest rates, the general government debt burden would rise sharply to 3.5 points of GDP in 2031, compared with 1.9 points of GDP in 2023.
The forecast that the debt ratio will begin to fall in 2028 is affected by the uncertainty surrounding the public deficit forecast. In particular, any deviation from the deficit forecast in the budget law for 2025 could delay the return to a deficit of less than 3 points of GDP and postpone the reduction in the debt ratio beyond 2028. In its opinion 2024-3 on the draft budget and social security financing bills for 2025, the High Council considers that there is a high risk that this forecast will be exceeded.
This means that there is very low fiscal space in the event of an economic shock in the coming years.
The High Council of Public Finance strongly reiterates that the medium-term sustainability of public finances calls for immediate and sustained efforts over the long term. It is imperative that France respects the trajectory of the medium-term fiscal-structural plan, while continuing to finance priority investments and taking care not to affect its growth potential.