National Auditors: France Risks Missing Budget Targets
France runs a "significant risk" of overshooting its budget deficit targets and even the government's latest plans will fall short of meeting EU limits, national auditors warned on Tuesday.
The public accounts court said that a slow start made to cutting spending meant that the government would have to cut even deeper than the targeted 50 billion euros ($68.0 billion) in the 2015-2017 period.
The report comes as the Socialist-led government under President Francois Hollande is in disarray over tax policy and a change of direction towards reform of the economy.
France has the European Union's second-biggest economy, and the state of its finances and efforts to turn around its anaemic economy are closely watched across the bloc, in particular in its economic powerhouse Germany.
The public accounts court said that France could miss its public budget deficit target of 4.1 percent of gross domestic product (GDP) for 2013, and warned that reaching the 3.6-percent target for this year "is not yet assured".
The president of France's highly influential public accounts court, Didier Migaud, said in a speech on its annual report that efforts to cut public spending had to be "pursued and increased in the next three years."
The report from the court, which each year gives an overall assessment of the state of public finances and also highlights selected cases of mismanagement and waste, comes just as the government begins work on how to cut a further 50 billion euros from spending in the next three years.
This is the key factor in a change of policy by Hollande, currently on a state visit to the United States, to finance a promised cut in taxes and charges on businesses to help them regain competitiveness on world markets.
Hollande, whose approval ratings are the lowest of any modern French leader, is under intense pressure to revitalize the French economy and reduce an unemployment rate that is at a 15-year high.
France has won extra time from the European Commission, until 2015, to get its public deficit within the permitted ceiling of 3.0 percent of GDP, but Brussels has warned Paris it has no margin of error in bringing its finances back into line.
Confusing signals, rosy forecasts
Hollande's Socialist-Green government faces internal strains and opposition from vested interests, however, in making further deep cuts in spending to help businesses and reduce unemployment.
And it has sent confusing signals to the market.
Hollande himself has raised the prospect of cutting taxes faster than envisaged to boost to jobs creation, only to see his finance minister and much-criticized prime minister say publicly that the deficit cut pledges remain the top priority.
The government is currently locked in difficult talks with businesses to extract commitments to boost hiring in exchange for the tax cuts.
Meanwhile it has launched extensive reviews aimed at a fundamental revision of the tax systems on businesses and households.
The accounting court has made a number of statements in recent months warning that France must reform quickly to strengthen its public finances.
It criticized the government for rosy forecasts, which have led to disappointing budget performance, and said that it was high time that this practice ended.
Revenues were overestimated by 16 billion euros.
The shortfall "explains, for the most part, why the reduction in the deficit was limited to 0.7 points of GDP in 2013 in comparison with 2012, instead of the 1.5 points" in the government's fiscal plans, it said.
And instead of 0.8-percent growth in 2013 as originally foreseen, the French economy expanded at just 0.1 or 0.2 percent.
When the eurozone debt crisis hit, France favored raising taxes rather than cutting spending in order to bring down its budget deficit. This was in line with a long tradition of French policymaking, to try to stimulate growth by stimulating demand even at the cost of an increased budget deficit.
Hollande continued in that vein after taking office in 2012, but discontent over the rising tax burden without any improvement in the economy has led to the government to shift tack.
The latest policy switch marks a break, notably for a left-wing government, by emphasizing so-called supply-side measures to give businesses more freedom to make profits.
The court said the delay in beginning to cut spending meant the total "of savings needed in the period 2015-2017 exceeds 50 billion euros" as targeted by the government.
Source: Agence France Presse
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