Arriving at the Court of Auditors at the start of the Covid pandemic, Pierre Moscovici immediately took on the role of guardian of the proper handling of public funds. Today, the former socialist minister is warning about the weight of the debt and does not reject the creation of an exceptional tax on high incomes to finance the climate transition. But it is a meticulous review of each public expenditure, over time, which must be the government’s priority according to him, to avoid the suffocation of political action. Interview.
L’Express: The government has made a promise to the French: no tax increase in the next budget. Is it because fiscal discontent threatens France?
Pierre Moscovici: I’m not going to second guess myself. Ten years ago, when I was Minister of Finance, I said that I understood the tax fed up of the French. Obviously, this did not please everyone, and in particular my political family at the time who thought that there were no limits to levies when public services were created. I persist today: the French people’s consent to tax is fragile and it must be preserved. It is a great asset for France. The very good performance of tax revenues allowed us to get through the Covid crisis, then the energy shock without too many difficulties for public finances.
This miracle is due to two things: the civic-mindedness of the French and a very efficient system of levies. The fact remains that consent to tax is all the more precarious as the rate of compulsory deductions peaks at 45.4% of GDP, a record. Going further does not seem reasonable to me. Conversely, I think that lowering taxes is also an option that must be avoided, because we no longer have the means to do so given the level of public deficit that we have. A net tax cut, that is to say uncompensated, means an additional deficit, especially when growth is weak. My watchword is fiscal stability.
Neither tax cut, nor increase: the tax tool is frozen so…
No way ! Fiscal stability does not prohibit touching the tax tool. But when we lower one tax, we must increase another or reduce spending in the same proportion.
Bruno Le Maire confirmed a reduction in income tax of 2 billion euros in 2025. Do you deplore this?
It’s a political gesture: why not? But these 2 billion will have to be compensated.
How to reconcile fiscal stability and reduction in public debt?
Basically, to reduce deficits and debt, there are only three levers. The first is growth. I see that there isn’t really a tiger in the engine today. The years ahead are likely to be sluggish. The idea that growth will itself generate its own tax revenues, by some sort of Keynesian miracle, seems illusory to me. Second lever, taxation: as I said, we are at a peak in terms of compulsory contributions. The third lever – and the good one! – is public spending. We will finally have to address this great taboo, this political unthinkable which is the control of public spending. They now represent 58% of GDP, one of the highest levels in Europe.
Today, each French person receives 28% more in constant euros in the form of public spending than in 2000! We could say that after all, it is a societal choice, a collective preference for spending. Everything would be perfect if the quality was there. But the French see clearly that the State is spending more and more and that the quality of public services is not keeping up. Let’s think about the hospital or education. Let us also take the case of housing: public spending in this area is twice the euro zone average. However, none of the objectives that one could hope for from a housing policy has been achieved: neither rotation in the social housing stock, nor construction of housing in sufficient quantities. The quality of spending must therefore improve. It is essential to save money. Not by playing politics, but by lifting the hood with a real review of public spending. Do we do it? Not really.
However, the government announced the launch at the end of spring of this famous review of public expenditure…
The public expenditure review is not simply a budgetary approach. It is a question of comprehensively reviewing the functioning of public spending, of doing so over time, with a plurality of actors. We must collectively change software to finally move on to an analysis that allows for fundamental reforms of public policies. Until we do this, we will be condemned to an arithmetic approach, which will be increasingly difficult.
You talk about “national preference for public spending”, but how can we teach this form of sobriety after three years of “whatever it takes”?
I approved of “whatever it takes”, absolutely necessary at the time of Covid to save lives and the economy. Then came the terrible war in Ukraine, and with it inflation, which we have already experienced in the past. Today is different. We must land and reaffirm loud and clear that public spending is not the answer to everything. The “billion” euros seems to have become the unit of budgetary request, this makes no sense.
Debt education must therefore be done. The French are not very sensitive about this subject. However, this is not a technical subject but eminently political. If we do nothing, the explosion of debt will paralyze public action and strangle it. Take the evolution of debt service: 21 billion two years ago, 46 billion today, 75 billion in 2027. For comparison, 46 billion is the defense budget, the second largest budget of State. 75 billion is that of education, the first. The day we reach this 75 billion and if the trend is not reversed, saying that we are going to save the hospital and revive housing will only be a fool’s errand. We will no longer be able to face the investment wall of the energy transition if we do not reduce the mountain of debt. Let’s get out of debt and invest! Let’s find some room for maneuver!
This requires a certain political courage…
The executive has finally become aware of the problem. It’s a first step. Now, let’s move on from speeches to general mobilization. Another effort! I am convinced that the subject of debt will be major in 2027 during the next presidential campaign.
What do you think of the Pisani-Ferry report on the cost of the energy transition and its financing, published at the beginning of the summer?
First of all, this is remarkable and very important work. And it has a great merit: it poses a diagnosis which is neither refuted nor refutable. For years and years we will need to make considerable efforts for the ecological transition: this seems unavoidable to me. We are coming out of a summer which revealed a climatic shift. For climate skeptics, if there were still doubts, they are lifted. We have the feeling that things are accelerating in unsuspected proportions, and the cost will be gigantic. If there is one public expense that cannot be avoided, it is this one.
There is, however, one point with which I disagree: Jean Pisani-Ferry thinks that we can add debt to debt, that there is somehow good and bad debt. In my eyes, this is an illusion because in the end, you always have to repay it. Obviously, some debt is more useful than another, and going into debt to spend on the energy transition is better than for operating expenses. But I still stick to a simple logic: we must reduce the stock of debt.
What about his suggestions, notably that of creating an additional tax on high incomes, a sort ofGreen ISF ?
We were very hasty with our tax proposals, as if to disqualify them. We must take this debate without taboo and without totem. The idea of exceptional taxation requiring an effort from the richest for a few years seems to me not to be brushed aside out of hand. I would like us to have a calm and profound debate on this. Furthermore, we must look at other dimensions: how to improve green budgeting, how to limit brown expenditure or even reduce certain tax expenditures? The thinking must be global and ambitious if we want to finance this vital investment for future generations.
Where do we find, in concrete terms, these billions needed for the transition?
No doubt in a mixture of taxation and other savings, and in the proactive reorientation of spending. Let’s be imaginative, for realism’s sake.
Is there a tax justice problem in France today? With, on the one hand, large companies versus SMEs, and on the other, large fortunes versus the working classes?
The notion of tax justice is understood differently depending on economic agents. For businesses, this refers to tax neutrality. In other words, are large companies and SMEs taxed in a similar or comparable way? The Mandatory Deductions Council, which I chair, carried out a study in July 2023 which showed that there were significant tax differences for the benefit of large companies in 2007, but that this gap had practically closed in 2019. However, it is possible that this gap is opening up again due to inflation.
For households, there is no notion of tax neutrality. Redistribution between the wealthiest, the most modest and the middle classes is a legitimate aim. Here too, our 2022 report on financial and tax issues emerging from the health crisis showed that compulsory deductions are overall proportional to income and therefore that the progressiveness of taxes on wealth is counterbalanced by the effects of other Specimens. The idea that very strong progressivity characterizes tax in France is not validated. This does not mean, however, that taxes do not contribute to the reduction of inequalities, through public transfers financed by levies, which are very progressive. Before redistribution, the income of the richest 10% is 13 times higher than that of the poorest 10%, after transfers the ratio is only 1 to 3.
This redistribution benefits the middle classes, since 7 out of 10 French people are net beneficiaries of the public redistribution system. But other psychological mechanisms play a role in the perception of inequalities. The middle classes are weakened, feel threatened and have pessimistic outlooks. I am wary of these reassuring statistics, which do not reflect the feelings of the French, worried about their future.
European budgetary rules are being renegotiated. Do you think this project will be successful and when?
I have been convinced for a very long time, after having been Minister of the Economy and Finance and European Commissioner responsible for these issues, that the current deficit and debt rules, which have been suspended since Covid, are no longer credible. They were not before the health crisis and are even less so today. These rules are illegible and procyclical. They distort and amplify cycle effects while being questionable. If we applied them again, we would find ourselves with many states in a situation of excessive deficit, even though growth is fragile. They must be reformed before reconnecting them. This is why I am very in favor of a rapid reform, for implementation at the beginning of 2024.
Before the European elections?
It is logic. But let’s not imagine that France would benefit from it being late. The longer they are negotiated, the more France’s gap with the others will be visible. Reformed rules, which would allow national debt profiles adapted to the different situations of each person in return for duly appropriate reform programs, this seems to me to be the right approach. But the devil is in the details. I know the contradictions that exist. I know from experience the difficulty of the matter. And I see the hardening of the German position.