In the 2022 draft budget bill, the French government foresees a deficit of 8.4% of GDP in 2021 and 4.8% of GDP in 2022 (vs. 9.1% in 2020). The public debt ratio is expected to increase to 115.6% of GDP in 2021 (from 115% in 2020), before declining slightly to 114% in 2022.
The large reduction in the deficit between 2021 and 2022 is primarily automatic. The improvement in the cyclical deficit is expected to contribute 1.6 points, while the 2.1-point reduction in the structural deficit is mainly due to the halting of most of the emergency support measures.
The disappearance of the emergency support measures in 2022 help generate a sharp decline in public spending as a share of GDP (-4.3 points), which explains not only the reduction in the fiscal deficit (-3.6 points) but also covers the reduction of the fiscal pressure (-0.8 points).
It is still too early for discretionary fiscal consolidation. The Covid-19 crisis still looms over the 2022 budget: both the French economy and society still need support. This support is provided via the roll out of the France Relance recovery plan, the pending France 2030 investment plan and increases in ordinary spending. Although the “whatever the cost” approach has been scaled back significantly compared to 2020 and 2021, it continues to prevail since no financing measures are proposed to offset the cost of the support measures.
According to the High Council of Public Finances (HCFP), the government’s 2021 and 2022 growth forecasts (6% and 4%) are “cautious” and “plausible”, respectively.
The HCFP has not commented on the plausibility of the French government’s fiscal deficit forecasts, since the draft budget bill was not completed. Certain spending measures were announced but had yet to be finalised (France 2030 investment plan, conditional income for youth), and were not incorporated in the 2022 draft budget bill. They will be integrated through amendments during the parliamentary debates.
Consequently, the Government’s fiscal deficit targets are likely to be adjusted in the weeks ahead. Its 2021 growth forecast has already been revised upwards to 6.25%. Yet we cannot be certain that the deficit will deteriorate further in 2022, since the current underestimation of spending could be offset by underestimated revenue.
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