Key Benefits:
High Council of Public finances were seized by the Government on 19 September 2014, in accordance with Article 14 of Organic Law n ° 2012-1403 of 17 December 2012 on the programming and governance of public finances, of the Macroeconomic forecasts and information elements relating to public finances on which the draft finance bill is based and the social security financing bill for 2015. The High Council adopted, after deliberation at its meeting on 26 September 2014, this opinion.
Summary
The High Council considers that the Government's growth forecast of 0.4 % in 2014 is
As for the year 2015, the 1.0 % growth forecast seems optimistic. It presupposes a rapid and sustainable recovery of the activity that the latest economic indicators do not announce. In addition, the Government's scenario presents, according to the High Council, several fragilities affecting the dynamism of the international environment and domestic demand.
The High Council notes that the Government does not correct the gap in the Structural balance trajectory of the December 2012 programming law, still in effect; on the contrary, this gap increases in forecast in 2014 and 2015. Rather than correcting this gap, the Government is making the choice to define a new trajectory, incorporating past deviations and setting new targets whose ambition is revised down.
In a context of combined weakness of the The High Council underlines the risk of this new postponement of the adjustment on the path of public debt, which will continue to increase.
The expenditure effort has been real since 2011. The High Council, however, considers, in view of the measures presented, that the objective of a growth in public expenditure limited to 1.1 % in value, foreseen for 2015, may not be achieved. The same would be true for the objective of improving the structural balance by 0.2 percentage point of GDP.
Introduction
In accordance with the provisions of Article 14 of the Organic Law of 17 December 2012, the High Council must Opinion on:
-the macroeconomic forecasts on which the Finance (PLF) and Social Security Finance (PLFSS) projects are based, on the one hand;
-the consistency of the chapeau of the draft finance bill Of the year in the light of the multiannual structural balance guidelines laid down in the Financial Programming Act, on the other hand.
In accordance with Article 23 of the Organic Law of 17 December 2012, the High Council shall Also an assessment of the correction measures presented by the Government following the activation of the correction mechanism in May 2014. In this context, it takes as its reference the structural balance trajectory of the Law n ° 2012-1558 of 31 December 2012 on the programming of public finances for the years 2012 to 2017, still in effect. The Organic Law provides that a report annexed to the PLF analyses the proposed corrective measures. This report was not communicated at the time of the referral.
The High Council has taken note of the forecasts and analyses from a set of institutions and agencies: INSEE, Banque de France, OECD, OFCE, Coe-Rexecode, the World Trade Organization, the European Commission and the IMF. It held the hearings of the representatives of the Banque de France, the European Commission, the OECD, the OFCE and Coe-Rexecode.
The High Council was not able, in contrast to last year, to benefit from early exchanges, as early as the month of July, with the competent authorities. No items were sent to him prior to the referral, which took place on 19 September 2014. This referral referred to additional questions to which the Government replied on 24 September. The High Council has not been aware of the articles of the financial and social security financing bills for 2015 as well as the preliminary assessments.
Even though it was called upon to rule on three financial texts, it Regrets that there was no possibility of substantial exchange with the authorities concerned upstream of the referral and that it had to concentrate its analysis and its work within the minimum period of one week provided for by the Organic Law of 17 December 2012.
I. -Comments on economic forecasts
1. The Government's Macroeconomic Scenario
The Government's macroeconomic scenario is based on a very gradual recovery in activity in France. Growth would be 0.4 % in 2014 and 1.0 % in 2015.
In this scenario, the recovery of growth in the euro area, backed by a ' Policy mix " More accommodating, and a more enabling environment outside the euro area, would support exports. By 2015, the competitiveness of French companies would be supported by the cost reductions induced by the ICCE and the Accountability Pact, as well as by the recent fall in the euro. Household consumption would generally follow the acceleration of purchasing power. Investment, out of construction, of companies would respond to the acceleration of activity. According to the Government, this resumption of investment would be facilitated by the maintenance of favourable financing conditions and the gradual recovery of the margin rate. Finally, inflation will rise slightly in 2015.
2. Top Council Appreciation
The Government's growth forecasts are identical to those published by the OECD in September and close to the consensus of forecasters established in the same month.
The forecasts for the years 2014 and 2015 is very close to those for 2013 and 2014 that were associated a year ago with the 2014 budget bill. Resuming activity is delayed by one year, while cyclical indicators, which are less well-oriented today than at the end of the summer of 2013, do not show short-term rebound in activity in France and the euro area.
Forecast for 2014
After a slight jump at the end of 2013, activity stagnated in the first half of 2014, and cyclical indicators best suggest low growth for the second half.
In view of the Growth at the end of the first half of today, estimated at 0.3 %, the High Council Considers that the Government's growth forecast of 0.4 % in 2014 is realistic.
The 2015 forecast
The High Council considers that the growth forecast of 1.0 % for 2015 is optimistic.
GDP growth of 1 % on average annually in 2015 implies a rapid recovery of activity at an average rate of at least 1 % per year. However, the latest economic surveys do not signal such an acceleration by the end of 2014.
While the Government is holding a conventional hypothesis of freezing the euro/dollar exchange rate, the continued decline of the euro Could help to support French competitiveness and exports.
In the opposite direction, the Government's macroeconomic scenario presents several elements of fragility. They concern both global demand and domestic demand (business investment and household consumption):
-the international environment, which is subject to a number of downside risks, Could be less bearer than anticipated by the Government. The World Trade Organization has recently revised downward its forecast for world trade growth to 4 % in 2015 from 5.2 % in the Government's scenario;
-activity may be slower in some countries The euro area, in particular Italy. The slowdown in some emerging economies is likely to continue in 2015;
-the resumption of productive investment (non-construction) could be delayed due to the low utilization of the Equipment, uncertain activity prospects and low margin rates on which the ICCE has, for the time being, had only a limited impact;
-the rebound in household consumption, which is based on a combination of assumptions May be of a lesser extent. In particular, the persistent lack of improvement in the labour market could lead households not to reduce their precautionary savings.
The High Council also notes a number of uncertainties that may affect the Growth prospects:
-geopolitical tensions in Ukraine or the Middle East are an additional risk factor for the recovery of the global economy;
-a normalisation of monetary policy in the US faster than anticipated Markets would be likely to affect financing conditions in the euro area and lead to an upsurge in financial tensions in emerging economies;
-positive expectations of economic agents, which Condition the restart of the internal demand, could delay Materialize.
In addition, in the Government's scenario, price increases would recover slightly in 2015 (0.9 % after 0.6 % in 2014) mainly due to the dissipation of exceptional factors that weighed on prices In 2014 and led to lower food prices and lower energy prices. These factors were expected to rise again in 2015, but underlying inflation (excluding volatile components) would remain moderate, with the effects of the euro's depreciation only gradually materializing. The High Council considers that these assumptions are plausible.
In total, the High Council considers that the Government's growth forecast of 0.4 % in 2014 is realistic.
As for 2015, the growth forecast of 1.0 % appears to be realistic. Optimistic. It presupposes a rapid and sustainable recovery of the activity that the latest economic indicators do not announce. In addition, the Government's scenario presents, according to the High Council, several fragilities affecting the dynamism of the international environment and domestic demand.
II. -Public finances observations
1. Public government balance forecasts in 2014 and 2015
The Government expects the actual balance to decline in 2014 (- 4.4 % of GDP after-4.1 % in 2013) and is improving very slightly in 2015 (- 4.3 % in GDP). The maintenance of a deficit above 4 % is explained both by a cyclical balance that continues to deteriorate in 2014, due to GDP growth still below potential, and by the slow pace of improvement in the structural balance in the course of the year. Two years (0.1 percentage point of GDP in 2014 and 0.2 percentage point of GDP in 2015, after 1.1 points in 2013) (Table 1).
Table 1. -From the actual balance to the structural balance (in GDP points)
| Actual Balance | -4.1 | -4.4 | -4.3 |
| Conjunctive Balance | -1.6 | -1.9 | -2.0 |
| Structural Balance | -2.5 | -2.4 | -2.2 |
| Point and temporary measures | 0.0 | 0.0 | -0.1 |
| Structural Adjustment | 1.1 | 0.1 | 0.2 |
| Required Pick Rate | 44.7 | 44.7 | 44.6 |
| Public outlays (excluding tax credits) | 56.4 | 56.5 | 56.1 |
| Structural adjustment is the one-year change in the structural balance. Due to rounding to the tenth, there may be slight differences in the result of operations. Source: Finance and social security finance bills for 2015 |
2. The correction measures in relation to the trajectory of the December 2012 programming law
In accordance with the provisions of Article 14 of the Organic Law of 17 December 2012, the High Council must assess the consistency between The preliminary draft of the draft finance bill and the multiannual guidelines for structural balance. Compared to the programming law of December 31, 2012, still in force, the gap in the trajectory would continue to widen in 2014 and 2015.
Due to the simultaneous filing of the draft finance bill for 2015 and a new draft law Programming for the years 2014 to 2019 which alters the multi-annual trajectory (1), the structural balance forecasts for the years 2014 and 2015 traced in the preliminary draft of the draft finance bill are, by construction, identical to the New multi-year guidelines
Pursuant to Article 23 of Article 23 of the The Organic Law of 17 December 2012, the High Council must also examine the corrective measures envisaged by the Government following the triggering of the correction mechanism in May 2014 (2). Indeed, the High Council has seen a gap for 2013 " Important " From 1.5 percentage point of GDP to the structural balance trajectory defined in the programming law of 31 December 2012. The Government must take account of this discrepancy in the draft financial law for 2015 by introducing the corrective measures envisaged in an attached report. This report has not been transmitted to the High Council.
The examination of the trajectory correction must be done according to the previous programming law.
A trajectory correction to move closer to the fixed structural balance targets In practice, in practice, to increase the planned adjustment in the coming years, to compensate at least in part for the insufficient adjustment noted in previous years. The projected structural adjustment in 2014 and 2015 is expected to be higher than in December 2012 (0.6 percentage point of GDP every year).
Anticipating this gap, the Government had increased the structural adjustment to 0.8 percentage point. GDP every year in 2014 and in 2015 in the stability programme of April 2014, which corresponded to a correction of 0.2 percentage point of GDP. However, the Government is revising down the structural adjustment to 0.1 percentage point of GDP in 2014 and 0.2 percentage point of GDP in 2015 in the draft finance bill. (3)
For the two years, this slightest adjustment comes in particular from a reduction in effort in Expenditure (4), in the context of lower inflation. While the targets set in value remain virtually unchanged (1.4 % in 2014 and 1.1 % in 2015), the growth in volume expenditure is revised upwards (0.9 % in 2014 compared to 0.3 % in the stability programme and 0.2 % in 2015 against-0.3 %). With more moderate inflation expected to translate more or less rapidly into less dynamic value expenditure, the value targets could have been adjusted.
Under the provisions of article 23 of the Organic Law of 17 December 2012, the trajectory correction can be suspended when the Government declares a situation of " Exceptional circumstances " (5). The High Council was not seized by the Government to determine whether these conditions were met.
The High Council notes that the Government does not correct the deviation from the structural balance of the December programming law. 2012, still in effect; on the contrary, this gap increases in forecast in 2014 and 2015. Rather than correcting this gap, the Government is making the choice to define a new trajectory, incorporating past deviations and setting new targets whose ambition is revised down.
In a context of combined weakness of the The High Council underlines the risk of this further delay in the adjustment to the path of public debt, which will continue to increase.
3. The forecast of the structural balance in 2015
In the draft finance bill, the Government forecasts a structural adjustment of 0.2 percentage point of GDP in 2015, carried out by an expenditure of 0.5 percentage point of GDP (6). He is continuing his public expenditure control programme in exchange for the slight decrease in compulsory deductions.
The articles and the preliminary assessments of the draft finance and social security financing bills have not Not been transmitted to the High Council, which was unable to assess the measures that support this trajectory.
As regards revenue, the net impact of the new measures is almost zero, covering contrasting developments: the levies are decreasing Within the framework of the ICCE and the pact of responsibility and solidarity. In the other direction, increases are planned, such as pension contributions, the climate-energy contribution or the contribution to the public electricity service. Local taxes are also expected to increase.
These new measures are in addition to a spontaneous rise that remains weak, due to the sluggish economic environment. By way of exception, the rebound in income tax (2.6 % spontaneous evolution) in the draft budget is not acquired due to the low income dynamics in 2014.
As regards expenditure, the savings plan announced by the Government involves all sectors of government. This effort results in an increase of 1.1 % in value, or, in view of the inflation forecast, by 0.2 % in volume.
The objective will be difficult to achieve for certain positions:
-the payroll of public administrations (excluding employer payroll taxes) would be stabilised in volume, which implies, in addition to the perfect state wage bill, a strong trend break for the Local authorities and hospitals;
-the inflexion of local public spending will depend on the behaviour of local authorities in response to declining government holdings. For example, they have the option of compensating them in part for tax increases. In addition, structural reforms relating to the organisation of local communities are likely to have a financial impact only in the medium term;
-with regard to social expenditure, the cost-saving measures of the financing bill Social security has not been fully brought to the attention of the High Council.
The expenditure effort has been real since 2011. The High Council, however, considers, in view of the measures presented, that the objective of a growth in public expenditure limited to 1.1 % in value, foreseen for 2015, may not be achieved. The same would be the case for the objective of improving the structural balance of 0.2 percentage point of GDP.
This opinion will be published in the Official Journal of the French Republic and attached to the draft finance law for 2015 at the time of its filing. 1 National Assembly.
ANNEXES
APPENDIX 1
MACROECONOMIC SCENARIO ASSOCIATED WITH FINANCE ACT
| Volume Operations and Services Operations | Annual Average % | ||||
| Gross Domestic Product | 0.3 | 0.3 | 0.4 | 1.0 | |
| Gross domestic product (year-end year-end) | 0.0 | 0.8 | 0.4 | 1.3 | |
| Household final consumption | -0.5 | 0.2 | 0.3 | 1.3 | |
| Public End Consumption | 1.7 | 2.0 | 1.2 | 0.8 | |
| Gross fixed capital formation | 0.3 | -1.0 | -2.4 | -1.1 | |
| including: Non-financial businesses | 0.1 | -0.9 | -0.6 | 0.9 | |
| public administrations | 1.6 | 1.0 | -0.5 | -4.3 | |
| households Non-individual entrepreneurs | -2.2 | -3.1 | -8.6 | -3.6 | |
| Imports | -1.3 | 1.7 | 2.6 | 3.6 | |
| Exports | 1.1 | 2.2 | 2.8 | 4.6 | |
| Contributions to GDP growth in volume | GDP points | ||||
| Non-inventory private domestic demand | -0.2 | - 0.1 | -0.3 | 0.7 | |
| Public Request | 0.5 | 0.5 | 0.3 | 0.0 | |
| Change in stocks and value objects | -0.6 | - 0.2 | 0.4 | 0.3 | |
| External Commerce | 0.7 | 0.1 | 0.0 | 0.3 | |
| Price and Value | %, Annual Average | ||||
| Price Index Consumption | 2.0 | 2.0 | 0.6 | 0.9 | |
| Gross underlying inflation index | 1.5 | 0.5 | 0.8 | 0.9 | |
| Gross Domestic Product Deflator | 1.2 | 0.8 | 0.8 | 0.9 | |
| Value Gross Domestic Product | 1.5 | 1.1 | 1.2 | 1.9 | |
| Productivity, Employment, and Wages | %, annual average | ||||
| Non-agricultural market branches: | |||||
| -Job productivity | 0.7 | 0.9 | 0.4 | 0.9 | |
| -salaried employment (natural persons) (*) | 0.0 | -0.8 | -0.2 | 0.1 | |
| -Average salary per head | 1.8 | 1.5 | 1.7 | 1.9 | |
| -payroll | 1.9 | 0.8 | 1.6 | 2.0 | |
| Total Employment | 0.1 | -0.3 | 0.2 | 0.3 | |
| (*) Employment estimates (ESTEL). Source: Ministry of Economy and Finance (September 19, 2014) |
| Structural Balance (1) | -2.5 | -2.4 | -2.2 |
| Economic Balance (2) | -1.6 | -1.9 | -2.0 |
| Exceptional measures (3) | 0.0 | 0.0 | -0.1 |
| Actual Balance (1 + 2 + 3) | -4.1 | -4.4 | -4.3 |
Statement of Reasons:
In 2013, the public balance amounted to 4.1 % gross domestic product (GDP), up from 4.9 % in 2012, an improvement of 0.7 percentage point despite the low growth in activity (+ 0.3 %). This recovery is the result of a significant structural adjustment of + 1.1 percentage point of potential GDP under new mandatory tax measures (1.4 percentage point of GDP). This adjustment is, however, lower than anticipated by the fact, on the one hand, of a spontaneous dynamic of lower income than GDP and, on the other, the very low level of inflation (0.7 % excluding tobacco), which makes the contribution of the Public expenditure on structural effort (- 0.2 point). Finally, since growth is below its potential, the output gap continues to rise, worsening the economic balance of 0.4 percentage point of GDP.
In 2014, the public balance would deteriorate by 0.3 percentage point of GDP, as a result of continuing The deterioration of the economic balance (- 0.4 %) as a result of economic growth which would remain atone (+ 0.4 % in volume) and exceptionally low inflation (0.5 % excluding tobacco). This deterioration in the cyclical balance would no longer be offset by the change in the structural balance (+ 0.1 point): while the structural effort would amount to 0.4 percentage point of GDP, its impact would be mitigated by a low elasticity of the levies (- 0.1 percentage point of GDP) and the effect of the new treatment of tax credits in the European System of Accounts (SEC) 2010, at-0.1 percentage point of GDP. The reduction in the structural deficit would also be reduced by the choice of a lower potential growth-that is, the potential growth estimated by the European Commission before revaluation related to the change in accounting base-which Reduces the structural adjustment in 2014 by ¼.
For the year 2015, the balance would improve by 0.1 percentage point of GDP, to reach 4.3 % of GDP, reflecting an improvement in the structural balance, also calculated on the basis of growth Potential of the European Commission, of ¼. With a growth forecast of 1.0 %, the evolution of the activity would be lower than the potential growth. The structural effort in expenditure, borne by the first effects of the € 50M savings plan announced by the Prime Minister in the framework of the stability programme, would amount to 0.5 percentage point of GDP. The measures to reduce compulsory levies in connection with the increase in the CICE and the implementation of the Pact of Responsibility and Solidarity would slightly reduce the structural adjustment, as would the widening of the gap between the Budgetary cost of tax credits and their cost in national accounts (- 0.1 percentage point). In addition, the adjustment would be reduced by the effect of ad hoc and temporary measures (Community litigation), at the level of 0.1 percentage point of GDP and by spontaneous growth of compulsory levies, which would remain slightly lower than that of GDP in value (also equal to 0.1 percentage point).
The methodology used to estimate the structural balance is not the same as that used in the Public Finance Programming Act for the years 2012 to 2017, but corresponds to The draft law for the programming of public finances for the years 2014 to 2019.
The main differences consist of a revision of the potential growth estimate, now identical to that of the European Commission, an update of the spontaneous elasticities to the tax activity by tax (identical to Those of the European Commission) and, finally, a change in the national accounting system (from the ESA 95 to the SEC 2010). This new national accounting repository results in a change in the levels of GDP and the public balance, in particular as a result of the change in the registration date of tax credits.
In total and in the previous repository (ESA 95 And potential growth of the 2012 public finance programming law), the reduction in the structural deficit would be more than 0.4 pt in 2014 as in 2015:
-up to ¼ point due to the revision of the potential growth of approximately ½ point;
-up to 0.1 percentage point due to the change in tax credit processing.
The following table provides a comparison Between the forecast of public deficit arising from the principles adopted in the Law on the Programming of Public Finance 2012-2017 and the forecast resulting from the principles adopted in the draft law for the programming of public finances 2014-2019:
| Structural Balance Project PSSA 2014-2019 | -2.5 % | -2.4 % | -2.2 % |
| Structural Balance PSSA 2012-2017 | -3.0 % | -2.5 % | -1.9 % |
| Structural Adjustment PSSA 2014-2019 | 0.1 % | ¼ % | |
| Structural Adjustment PSSA 2012-2017 | 0.5 % | 0.6 % |
Done at Paris, September 26, 2014.
For the High Council of Public Finance:
The first President of the Court of Auditors, President of the High Council of Public finance,
D. Migaud
