The deficit narrowed more than expected in 2011. Good news for the future president. But the deficit target of 3% of GDP by 2013 seems difficult to achieve, given the campaign promises made by candidates at the Elysee Palace. View of the Ministry of Economy and Finance at Bercy.
At twenty-three days of the first round of presidential elections, Nicolas Sarkozy may finally assert some good news on the economic front: the public deficit of France was reduced to 5.2% of GDP in 2011, against 5, 7% initially foreseen in the budget law. President, UMP candidate at the Elysee Palace, was granted the first to hear the announcement this morning on Europe 1, grilling politeness in passing at the National Institute of Statistics.
Members of his government were also quick to react. Valérie Pécresse, the budget minister, welcomed an effort "historic". "Never has the government deficit in France has fallen as far from one year to another," Francois Fillon welcomed. "This is the result of both structural reforms that the president and government have undertaken since 2007 and the reactivity of which we have been to take timely steps to preserve our cap facing the crisis, "said the Prime Minister.
In fact, the deficit is indeed historic. It is almost two percentage points of GDP – the deficit was 7.1% in late 2010 – or nearly 40 billion euros. "This is a performance ever," says Jean-Christophe Caffet, economist at Natixis. This improvement comes at a time of buoyant revenue, which rose from 49.5% to 50.7% of GDP, and expenditure restraint, which rose from 56.6% to 55.9% of GDP. The sharp increase in expenses is largely due to strong tax bases and good elasticity of taxes to the moderate growth – 1.7% in 2011.
Taxes on income and wealth have risen by 10% in 2011: the increase in tax revenue comes from both the corporate income tax (8.7 billion) that the income tax (3 , 6 billion) and social contributions (13.3 billion) due to higher payroll. Measures taken in the context of both austerity also had a positive effect: the CSG revenues increased 5.2 billion due to the introduction of taxation over the water revenues of life insurance, VAT receipts were boosted (5.8%) by increasing the tax on insurance contracts and the removal of VAT reduced on triple play.
The deficit target for 2012 is achievable
Result the tax burden rose 1.3 points to 43.8% of GDP last year, surpassing 2007 levels, while Nicolas Sarkozy promised to lower them. As for spending, they have continued to increase, but it is true more slowly than inflation. Operating expenses of the state, including staff salaries, slowed sharply (+1.6% after +2.1% in 2010), by freezing of the index which is indexed on the salaries of civil servants . Spending inputs have, they, down 1.5% due to very low shipments of military equipment in 2011, and public investment has registered a moderate increase (+1.6%). Ultimately, Jean-Christophe Caffet calculates, "the structural effort of the government is only about a third of the deficit reduction in 2011."
Nevertheless, the result is there. And strength of this success, the executive has even lowered the public deficit target for this year to 4.4% of GDP against 4.5% previously. Given the growth overhang the first half of 2012 to 0.5% according to INSEE – and reduces the effort required this year – 0.8 percentage points of GDP or 16 billion euros -, "this goal deficit is largely achievable, "said Jean-Christophe Caffet. Especially as many measures as part of the austerity plan – increase in VAT reduced from 5.5% to 7%, establishing an outstanding contribution on high incomes, freezing the scale of the income tax, freeze benefits, etc.. – Come fully into force this year.
A boon for the next president to be elected in May and the government that emerges from the polls in June. "The big uncertainty is 2013, warns economist of Natixis, because nothing is known about how the structural effort that will achieve, or about 30 billion euros". France has indeed committed to Brussels next year to bring its public deficit to 3% of GDP. Nicolas Sarkozy and François Hollande, have both confirmed this objective during the campaign. The two favorites in the race to the Elysee to differ only after the UMP candidate promising to balance the budget by 2016 while that of the PS wants to achieve in 2017.
The problem is that Nicolas Sarkozy has not announced anything else, for now, that further measures of reduced spending over the past two years. But it will not be sufficient to reach 3%, especially if growth is still not at the rendezvous. As for Francois Hollande, it provides 25 billion of new spending on the five-year and 40 billion annual tax increases. Increases which will focus on businesses, which may penalize growth. From this perspective, The Economist is right: "Whoever wins on May 6 will adopt a tough stance against the deficit, writes the weekly UK this week. Nicolas Sarkozy will make further cuts in the budget, Despite his promise to protect the French austerity. Francois Hollande will push, if not waived, that many of its spending promises. "
