Fault confessed half forgiven? “I hope (…) that we can improve the quality of our forecasts and the monitoring of our accounts. There have been many questions regarding the forecast gaps, both in expenditure and in revenue on the State budget in 2023 and 2024. I hope that there will be full transparency on this subject,” emphatically launched Antoine Armand, the new Minister of the Economy during the presentation to the press of the draft budget for 2025.
Lots of “questions”? A nice euphemism to talk about a big blunder, and a major forecast error. This year, the slippage in public finances has not only been spectacular, and unprecedented outside of a period of recession, but above all it is very far from what was engraved in stone by the PLF last year, at the same time. On September 27, 2023, Bruno Le Maire, the former boss of Bercy, promised for the year 2024 a public deficit reduced to 4.4% of GDP, after 5.5% in 2023. We now know that the hole in the public accounts should approach 6.1% of GDP. Already in 2023, between the forecast included in the bill and the achievement, a gap of 0.6 points of GDP had appeared.
In a note published in July, experts from the General Inspectorate of Finance (IGF) affirm that last year’s gap is “essentially due to an overestimation, in anticipation, of compulsory levy revenue to the tune of 21 billion euros” compared to the budget voted at the end of 2023. Problem, these forecast errors arise “after several years of underestimating the evolution of revenues”, conclude the IGF researchers.
“Bold forecasts”
Have the mathematical models of Treasury accountants become faulty? Or would the hypotheses used in these famous models be – intentionally or not – too optimistic? For two years, the economists of the Treasury Department have apparently established their tax revenue projections based on an elasticity of taxes and fees to growth ultimately greater than what actually happened. Economics is not an exact science. However, mathematical and econometric models tend to replicate the past.
Bercy would have, if we are to believe its new boss, learned its lesson. Except that certain voices are already being raised to denounce the hypotheses, undoubtedly a bit too rosy, retained in the new finance bill for 2025 which will be discussed in the National Assembly. Among them, Pierre Moscovici, the president of the Court of Auditors but also president of the High Council of Public Finances who, a few hours before the presentation of the PLF, denounced the “bold forecasts” which never materialized.
Recipient of the Barnier project, the High Council considers that the macroeconomic scenario for 2025 is overall fragile. “The growth forecast for 2025 firstly appears a little high given the restrictive orientation of the associated public finance scenario.” Indeed, in its projections, Bercy assumes that the 60 billion recovery plan will have only a minimal impact on growth, which would remain stuck at 1.1%. However, the assumptions concerning business investment and the drop in the household savings rate would not be consistent with a budgetary adjustment as announced by the government, despite the support that the drop in savings rates can provide. interest, conclude the experts of the High Council. Logically, the revenue projections would also be a little proactive.
So, is Antoine Armand the watered sprinkler? The Minister of the Economy promises an action plan which should take up some of the IGF’s recommendations and which will be presented to Parliament before the end of the year. To improve the quality and transparency of public finances. And so that the truth about the debt, as Michel Barnier promised when he arrived at Matignon, is finally established.
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