The time for rigor has arrived. Expected to be less than 5% of GDP, the 2023 public deficit of the State, Social Security and local authorities will be well above this figure. Let us leave aside the local authorities which do not have the right to vote for an operating budget in deficit and whose contribution to the French public deficit is therefore secondary. The Social Security deficit will have slightly exceeded 10 billion euros. That of the State stood at… 173 billion euros, or not far from 40% of its expenditure. So much for the orders of magnitude. The government wants to cut Social Security spending by reducing hospital transport costs or once again reducing the duration of compensation for the unemployed. Why not. Except that we clearly see that France’s financial problem concerns the State more than Social Security.
Bruno Le Maire has already asked ministers to save 10 billion euros this year. But between the reduction in the precautionary reserves of certain ministries – the credits saved to face unforeseen expenses -, the postponements of real estate projects or the spreading of payments from State suppliers, i.e. quasi accounting artifices, it In reality, there remains quite a few real reductions in spending, which can be estimated at a few billion. And for good reason: this planer strategy has already been used ten times, and there is not much left to plane.
Risk of weighing on activity
Hence the great temptation of the moment: to increase taxes. Alain Minc thus proposed an increase in VAT arguing that “there is fire in the lake”. Which raises two questions. Is raising taxes the best or, more precisely, the least bad economic policy? Is there actually a fire in the lake of public finances? The answer to these two questions is negative. Let us remember, if necessary, that France is the world champion in compulsory contributions (social security contributions + taxes). This simple remark alone militates in favor of tax abstinence.
More fundamentally, at this level of fiscal pressure, raising taxes works with diminishing marginal returns, especially in the period of economic slowdown that we are experiencing. François Hollande had the bitter experience of this in 2012. Driven by the desire to quickly reduce public deficits, he carried out a fiscal shock which weighed on activity and which generated disappointing revenues. Deficits have been reduced a little – less than expected – but unemployment has increased.
Let us add to this economic argument that politics must be taken into account. If Alain Minc is right to note that VAT is obviously the least harmful tax in terms of growth, being the minister who will increase it while many of our fellow citizens have lost purchasing power with post-inflation -Covid would be perfectly kamikaze behavior. Lowering VAT, as proposed by the National Rally, is a financial crime without economic gain; increasing it is a political impossibility.
Simplify standards and eliminate the status of civil servants
So what to do? In the short term, two things. On the one hand, engage in the “de-whatever-costing” of the French economy, that is to say, explain to the French that, faced with a shock like the energy crisis of 2022, the State will no longer be able to protect them. Second thing, put in place all the normative simplification measures which make it possible to boost activity and therefore increase tax revenue.
In the medium term, it will be necessary to undertake this gigantic project of reform of the public sphere, which involves in particular the abolition of the civil service status for non-regal functions of the State. This is what will allow us to slowly but surely reduce our deficits. This project requires a lot of courage squared away.
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