Other factors will also make deficit targets not that easy to reach, namely the risks of slowing growth[5] and the fact that spending efforts have yet to materialise. Nonetheless, the High Council of Public Finances (HCFP) deems that the government’s growth and deficit forecasts are “plausible” for both 2019 and 2020 [6]. In contrast, the High Council is much more critical about the change in the trajectory of the structural deficit compared to the one defined in the January 2018 public finance programming bill (LPFP). There is a gap of 0.1 point in 2018 and 0.3 point in 2019, which is “very close to the triggering threshold of the correction mechanism.” [7] It widens even further in 2020 (to -0.6 point), which leads the HCFP to signal “a problem of consistency between the 2020 draft budget bill and the LPFP.” The 2020 budget does not comply with European fiscal rules either[8]. Yet the European Commission is likely to be conciliatory considering the reforms underway in France and the general call for fiscal loosening, which France seems to have anticipated to a certain extent.
We do not see the 2020 budget as a turning point in the government’s economic and fiscal policy, but as a budget of continuity and adaptation: continuity because it pursues the measures and reforms that were previously engaged; adaptation because new measures are taken to respond to unfavourable trends in the economic and social context. There has been a shift in the balance between supply-side and demand-side policies and the priority is now given to stimulating demand rather than supply.
Supply-side initiatives have not been called into question. They were launched first in part because they take longer to bear fruit. Since then, fiscal adjustments were needed to comply with France’s deficit reduction targets, which meant that certain support measures had to be postponed or spread out over time (additional reduction in charges for minimum-wage earners as part of the transformation of the CICE tax credit into reduced employer contributions, downward trajectory of the corporate tax). But there has been no backtracking. Measures to stimulate demand have also been present since the Macron administration’s first budget, although they were given secondary importance, and notably efforts to support employment and ensure that it pays better, using an implementation calendar that worked against it[9].
This support of demand has been made the top priority in response to the “yellow vest” protests. A series of measures were taken to boost household purchasing power[10]. The emergency economic and social measures (MUES) and other adjustments announced at the end of the Great National Debate, which have been incorporated in the 2020 draft budget bill, are specifically designed to support the purchasing power of low-income and middle class households. In its latest assessments, the Institute for Public Policy (IPP) points out the significant gains in disposable income in these income categories[11]. Opportunely, these measures also support growth, which has been hampered by a more uncertain, less buoyant external environment. To avoid straining activity any further, financing measures were scaled back in the 2020 budget, which clearly signals the will to encourage growth. In the previous draft budget bills, economic stimulus and deficit reduction measures were given equal priority, and any stimulus measures were offset by financing measures. This is no longer the case in the current budget, with the renouncement of full compensation, including spending savings, and with the relegation of deficit reduction to a lower level of priority.
Considering the spending aspect of the 2020 budget, we do not have much detailed information. The government indicates a slower increase in expenditures, their decline as a share of GDP, and a structural effort estimated at 0.3 point of GDP, but it remains very vague when it comes to savings measures. At the state level, it highlights the ongoing effects of reforms to the labour market, public action, public audio-visual services and housing policy. Controllable expenditures and government spending (ODETE)[12], healthcare spending (Ondam[13]) and local governments spending[14] are still contained by the standards they must operate under (2%, 0.8%, 2.3% and 1.2%, respectively). Another source of savings is the under-indexation of certain social welfare benefits to inflation (revaluation limited to 0.3% for pensions of more than EUR 2000 per month, housing subsidies, family allowances and the in-work bonus). Local public investment is expected to slow sharply in keeping with the local electoral cycle. The government also intends to benefit from the growing importance of savings arising from the unemployment insurance reform (EUR 1.5 bn) and roughly EUR 3 bn in savings on the debt servicing charge. Other expenditures have increased, namely for state prerogatives; the revaluation of monetary benefits for low-income households; and expenditure on the environment, commuter transport, youth, education and human capital.
