Deficit reduction: government forecast ‘not credible’, challenges Supreme Council of Public Finance

The High Council of Public Finance (HCFP) concluded on Wednesday that the government’s new deficit-cutting trajectory, which aims to return to below 3% of GDP in 2027, lacks “credibility” and “consistency” when faced with the challenge. “alarming” situation in public finances.

“Given the unexpected worsening of the government deficit in 2023 to 5.5% of GDP instead of the originally planned 4.9% and the “lower growth hypothesis,” “a return of the government deficit to below three points of GDP in 2027 would mean a major structural adjustment between 2023 and 2027 (2.2 points of GDP over four years)”, which “will essentially be based on attempts to save on costs,” the HCFP summarizes, in its opinion.

The new stability program, or “PSTAB”, presented this Wednesday morning to the Council of Ministers, sets out for Brussels the way in which France intends to return to a government deficit level below 3% of GDP in 2027, under pain of financial sanctions. He projects the deficit to fall to 5.1% in 2024, 4.1% in 2025, 3.6% in 2026 and finally 2.9% in 2027.

“Inflated” GDP trajectory

“The High Council considers that this forecast is not credible” both because the documentation of these efforts, “never carried out in the past,” remains “at this unfinished stage” and because “its implementation presupposes the establishment of “strict management” , including all interested parties (State, local government and social security), which does not occur today,” explains the opinion.

“This forecast also lacks consistency,” the agency warns: “The implementation of the planned structural adjustment is bound to impact, at least in the short term, on economic activity,” so that “the government’s high growth forecasts” appear “unfounded.” very consistent with the extent of this adjustment.”

The government’s growth forecast for 2024, revised downward in February to 1% from a previous 1.4%, “remains optimistic” “even if not out of reach,” HCFP estimates.

But overall, the “GDP trajectory” retained in government forecasts for the 2024-2027 period is “overestimated,” HCFP says. “There is therefore a significant risk that the government’s estimate of potential GDP will subsequently be revised downward, and therefore the structural portion of the deficit will be revised upward,” he warns.