The deficit is lower than expected

The government of France, led by conservative François Bayrou, breathes something quieter. The neighboring country closed 2024 with a budget deficit of 5.8%, that is, 169.6 billion euros. The consensus and the Gallic Executive himself expected it to be 6%. Of course, four tenths increased with respect to 2023, a discovered who also scored a record and was a hard blow to the government of that time, that was not expected.

The tenants of Bercy (this is commonly known to the Ministry of Economy and Finance Galo) awaited this good news and, finally, the National Institute of Statistics and Economic Studies (INSEE) was confirmed this Thursday. The fact that the one discovered in the French accounts does not exceed 6% leaves the Minister of Finance, Eric Lombard, to be able to achieve the 5.4% objective to which they expect to reach the closing of the fiscal year of 2025 and also to cut the debt.

According to INSEE data, Galas’ public accounts ended the year 2024 with a public debt that reached 113% of GDP, after 109.8% of 2023. In 2019, before the Covid pandemic broke out, red numbers were barely 97.9% of the total economic production of the neighboring country.

It is clear that, taking into account the scenario from which they started from Bercy, the fact that the public deficit moves away from 6% is somewhat hopeful, but very insufficient. In fact, Eric Lombard himself, said France Inter, in the morning program of this Thursday, that “are not good news.” The leader pointed out that the deficit is still “too high” and that we must continue working to bend the growing curve.

“It is a little better because the expense has been very well controlled by the government of Michel Barnier,” said Lombard.

Keep in mind that fiscal difficulties caused enormous political uncertainty last year that led to early elections. The result was the most fragmented National Assembly in the history of the country and a prime minister, Michel Barnier, who only lasted six months in office in the face of the inability to carry out some general budgets.

The data could grow

The director of the INSEE, Jean-Luc Tavernier, called for caution because, although “now we have the accounts”, there is uncertainty with the financial results of public hospitals that will not be known until the end of June. Depending on how they close, it is possible that there is a review in September of an upper tenth for the deficit, which would bring it even more to that feared 6%.

With respect to last year, the INSE also corrected the discovery of public accounts, from 5.5% to 5.4% of GDP. This improvement was expected for a long time, especially when the Social Security deficit of 2024 was published in mid -March, which was also less expected.

The situation in France is a little better now and this paves the land to the Executive to limit its red numbers until achieving the objective by the EU of 3% by 2029. Although it remains a difficult task.

Taxes went down but the expense remained

The deficit remains in full deterioration. It has increased by 0.4 percentage points, that is, about 12,000 million euros in just one year. The head of the Galo Statistics Institute, Jean-Luc Tavernier, blames this expansion to “an increase in expenses for a decrease in income.” That is, in 2024 the type of taxes fell to 42.8% of GDP, which led to a similar situation “prior to the tax increases of fiscal year 2012-2013,” said the expert. On the other hand, the expense shot up to 51.7% of GDP, which puts it almost at the same level as at the beginning of the decade, Tavernier reiterated.

This lack of control of public accounts is because, as of 2017, when Emmanuel Macron entered to preside over the Republic, successive governments dedicated themselves to lower taxes uncontrollably without thinking about cutting the expense. Both Édouard Philipe, through Jean Castex, Elisabeth Borne or Gabriel Attal wanted to undo the tax policies of François Hollande, but without modifying their spending policies.

Thus, according to INSEE, Gallic public spending increased by 63,000 million euros at the end of 2024. It is true that the State pressed the belt last year, with a slight increase of 0.6% in public dispensations. But, in the case of local entities, the expense was not moderated, on the contrary, it grew 4.4% more with respect to the exercise of 2023. Likewise, social security expense also had a very close behavior (+5.5%).

The Insee report says that social benefits accounted for more than 60% of the increase in public spending, increasing by 39.1 billion euros in 2024. “This increase is largely due to the revaluation of indexed benefits to high inflation of 2023”, which meant the remaining 40% of public spending. Specifically, the pension item increased by 6.9% in 2024, after 5% of 2023. On January 1, the revaluation was 5.3%.

For this year, with the aim of shortening the deficit, the Michel Barnier executive intended to delay the revaluation to July this year, but the ultra -right of the National Group and the left of France Insumisa rejected this proposal. This was one of the reasons, among others, which led Barnier to resign.

With regard to income, “as expected,” said Tavernier, taxes “disappointed” in 2024. Executives made a great mistake in the forecast of fiscal income, which played a fundamental role in this detour from the public accounts. In the budgets of last year it was planned to reach a deficit of 4.4%, but the fork opened at 41,00 billion euros due to this failure of the collection.

“This I find it a bit surprising,” said the director of the INSE, referring to the increase in spending against income.

Unknown with the increase in military spending

At a time when the increase in military spending is being discussed within the EU, the unknown arises of what France can do. Public accounts are made a disaster and this complicates things.

Although this does not seem to worry President Macron. The Gallic leader expressed his intention to raise defense spending up to 3.5% of GDP, which represents an additional investment of approximately 3,000 million euros per year.

As reported by the Government, not to have to raise taxes will issue specific bonds for defense, allowing citizens to contribute to the military strengthening of the country.

Lombard reiterated that France is not going to be diverted from his career to correct public accounts, although military spending increases, which will also be cut from other items. In his radio interview he announced that his government will evaluate the change of economic perspectives in mid -April, but the objective of reducing the 5.4% deficit in 2025 will remain in force and “we will do everything you need” to fulfill it.

“As long as we do not address the problem of debt and deficit, we will be at risk,” said the minister.

The plan to finance the defense intends that public investors invest 1.7 billion euros of capital that, thanks to the coinversion with private investors, will allow to invest up to 5,000 million euros in additional own funds for the sector.

Savings and more savings

The fact that the deficit has been cut in 2024 draws a more flattering horizon for Bercy in 2025. This fall allows to compensate for the slow growth that is experiencing the second economy in Europe. The forecasts are not flattering and the GDP runs the risk of staying in a lean of 0.9% provided by the Government in the 2025 budgets and the Bank of France.

On the other hand, Bloomberg’s consensus (groups the predictions of the main private macroeconomic analysts) is much more optimistic and predicted than the French economy can grow up to 1.2% this year, which would give Bercy even more oxygen.

According to a report by the General Directorate of the Treasury, the forecast to shorten the 5.4% deficit for this year remains realistic “but is subject to upward risk.” Therefore, it recommends setting a savings plan of 5,000 million euros for this year, just the amount it intends to increase defense expenditure.

The Higher Council of Public Finance (HCFP) warned in January that a part of the savings approved in the 2025 budget was not properly documented in the Finance Law draft reviewed by the Bayroun government. It is now necessary to correct this situation, especially because the treasure also alerts about the risk of an unexpected increase in mandatory taxes this year, also estimated at approximately 5,000 million euros.

Those responsible for finance and budget have the focus on the cut of the expenditure of local administrations. The Minister of Public Accounts, Amélie de Montchalin, said that the meeting of the Budget Commission of April 15 will “evaluate with transparency the possible adjustments that must be made.”

In this commission all stakeholders will be, even elected positions, social interlocutors and local authorities, Lombard said. The objective: “Do not find ourselves in a single year with a 2025 deficit published by the INSE of more than 5.4%,” he said.

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The deficit is lower than expected