On 22 January, the Government sent the High Council a request for an opinion on the changes it plans to make to the macroeconomic scenario and forecasts associated with the 2025 draft budget bill (PLF) and social security financing bill (PLFSS).
On the basis of article 61 - VI of the amended Organic Law on Budget Laws, the Government sent the High Council a request for an opinion on its new macroeconomic forecasts, revising those of October 2024 underlying the draft budget bills (PLF) and social security financing bills (PLFSS) for 2025. Although not explicitly provided for in the Organic Law, it also provided the High Council of Public Finance with its updated public finance forecast. The High Council welcomes this, as it enables it to better fulfil its mission of informing citizens and Parliament about financial texts.
In the context created by a significant deterioration in the public deficit in 2024 for the second year running, which exposes France even more to the risk of rising interest rates, it is essential and a matter of urgency that the financial texts for 2025 are adopted on the basis of realistic forecasts and measures to initiate the trajectory of deficit reduction.
The High Council considers that the GDP growth forecast for 2025 (+0.9%), higher than that of the consensus of economists (+0.7%), is achievable but a little optimistic in view of the most recent economic indicators.
Similarly, the inflation forecast (+1.4%) seems a little high given recent trends and sluggish demand. The payroll forecast for the market sectors is slightly optimistic for 2024 (+3.0%), given the data already available, and for 2025 (+2.5%), given the slowdown in activity and the fall in inflation expected in 2025.
The public deficit forecast for 2024, revised to 6.0 points of GDP instead of 6.1 points in October, is plausible even if it remains affected by uncertainties, particularly on the expenditure of local authorities, whose full accounts will not be known until next March. This would represent a deterioration of 0.5 point compared with 2023 and a deviation of 1.6 point compared with the PLF forecast for 2024.
The public deficit forecast for 2025 has been revised upwards, from 5.0 points of GDP in the initial PLF to 5.4 points, as a result of the updating of macroeconomic forecasts, the inclusion of new information on implementation in 2024, and the abandonment of provisions set out in the initial PLF and PLFSS for 2025.
This budget bill would begin the essential path of deficit reduction, but offers little margin for error. It is based on measures to be confirmed in the current parliamentary debate and in subsequent legislation. The deficit forecast is also based on somewhat optimistic macroeconomic assumptions, a marked slowdown in local authority spending and tight control of health insurance expenditure, which must be backed up by more effective measures than those deployed to date, as well as strict management of State credits.
With the cost of debt expected to rise to €67bn in 2025, an increase of €8.3bn, after an increase of €6bn in 2024, compliance with the deficit target of 5.4 points of GDP this year, the ambition of which has already been reduced compared with last autumn, is imperative in the context of the urgency associated with the slippage in public finances in 2023 and 2024. Given the urgent need to reduce the deficit, the Government must be prepared to take the necessary measures in the event of revenue shortfalls or expenditure slippage during the year.
The structural balance presented by the Government amounts to 5.5 points in 2024 and 4.7 points of GDP in 2025, i.e. a structural adjustment of 0.7 point. The difference between the projected structural deficit and that in the public finance programming law (PFPL) would then be 1.8 point of GDP in 2024 and 1.4 point in 2025. These differences are well in excess of 0.5 point of GDP, which suggests that, when the High Council examines the draft bills relating to the results of management and approving the accounts for the corresponding years, they will be significant within the meaning of the Organic Law. However, the size of these differences shows that the PFPL, which was enacted just over a year ago, is out of date.
The Government estimates that the growth in public spending clearly exceeds the growth in potential GDP, on a no-policy-change basis, which causes the ratio of spending to potential GDP to rise spontaneously by 0.9 percentage point, and that the measures it is taking cause it to fall by 1.0 percentage point of GDP. However, the Government does not provide the assumptions underlying this estimate, which would enable us to assess its relevance.
In any case, the expenditure-to-potential GDP ratio falls by only 0.1 point overall, and it is the rise in the rate of compulsory deductions that ultimately accounts for almost all of the structural adjustment of 0.7 point of GDP in 2025. The High Council stresses the importance of increasing the share of structural adjustment in expenditure in the structural balance trajectory, based on a detailed assessment of the efficiency and quality of public spending.
According to the Government's forecasts, the debt-to-GDP ratio will start to rise again in 2024 and 2025, reaching 115.4 points of GDP and thus exceeding the high point reached during the health crisis, i.e. almost 6 points of GDP above that of the PFPL.
It is essential for France to meet its target of bringing the deficit back below 3 points of GDP in 2029, as set out in its medium-term fiscal-structural plan, in order to keep control of its public finances and manage its debt, while financing priority investments and ensuring that its growth potential is not affected.