A former senior civil servant who worked at the Ministry of Finance and the Court of Auditors, François Ecalle is therefore a specialist in public finances. The details of the budget, or rather even of the two State and Social Security budgets, will be revealed on Thursday October 10. But the philosophy is already known.
Prime Minister Michel Barnier has prepared people’s minds. We will have to make colossal efforts, collectively, with 60 billion euros in savings to be made in 2025.
franceinfo: The head of government keeps saying that the deficit is growing dangerously to more than 6% of GDP this year, that if nothing is done, it will be even worse next year. Is there really danger in the house?
François Ecalle: Yes, it is true in the sense that we already know that in 2023, the deficit was already very high. It risks increasing in 2024 and 2025 if we do nothing, which means that the public debt will increase.
“The whole problem is there: we risk one day seeing the State’s creditors worrying about not being repaid, then asking for higher and higher interest rates, until a moment when it is the crisis.”
François Ecalle, former senior official of the Court of Auditorsat franceinfo
At this point in the crisis, we are forced to rely on the intervention of the European Central Bank to help us. But in principle, this intervention is not without compensation. She has done this in the past. It can do it, but in the past it has forced countries like Greece, Italy, Spain, Portugal to take very tough measures. So to keep our budgetary sovereignty and not depend on decisions taken in Frankfurt, we must indeed make efforts to reduce the public deficit.
For businesses, there will be tax increases on large businesses, corporate tax surcharges above 1 billion euros in turnover, 8 billion euros in estimated revenue, and surcharge also on shipowners. Is it good to involve large companies in the collective effort?
I’m a little reserved. The government presents this increase in the corporate tax rate as exceptional, temporary, for one or two years. But the public deficit must not be reduced sustainably. Which means that in one or two years, we will either have to extend these measures or find something else. The most likely thing is that we will extend it. We already have the experience in France of exceptional taxes which have lasted.
Here, it will be enshrined in law.
But in two years, you can pass a new law. If it was truly temporary, I think it would be a good thing. The risk is that it will be sustainable or perceived as sustainable. At that point, it risks having quite negative effects on business investment. All studies show that when you increase the corporate tax rate, it has negative effects, particularly on investment. So it’s a bad signal.
If we add to this exemptions from contributions which will be reduced to the level of the minimum wage, for Medef as for others, hundreds of thousands of jobs risk being eliminated. Is he right to be worried?
When we talk about hundreds of thousands of jobs, we are greatly exaggerating.
“In any case, almost all measures to reduce the public deficit, whether in the form of tax increases or spending savings, have negative short-term effects on activity and employment.”
François Ecalle, former senior official of the Court of Auditorsat franceinfo
We can hope that in the medium to long term, these effects will attenuate and disappear. But in the short term, it is negative. And measures like an increase in employer contributions, yes, that can have negative effects, even if we can think that at certain salary levels, these contributions are not necessarily very, very useful.
Will this break French growth?
No, because in fact, I don’t think the scale of the recovery is 60 billion. In reality, I think it will be much less. The government is talking about 40 billion on spending and 20 billion on taxes. I think it will be a little more on taxes, more like 25. On the other hand, on spending, we will not save 40 billion if we manage to make 15 or 20, I think that will already be good.
For households, no tax increases announced on wealth, no change in the income tax scale, but very high incomes, above €250,000 per year, will have a minimum rate of 20% income tax. Is this a good measure and is it effective?
I think we can’t avoid it. Financially, it is expected that it will bring in 2 or 3 billion, I haven’t done the calculations myself. And it is necessary to give a signal. It is also preferable to send a signal by levying a little more on very high incomes, rather than increasing the tax rate on corporate profits.
And does this help avoid tax optimization?
To do this, we must see how the measurement is calibrated in practice.
Retirees will be called upon since their pensions will only be increased to keep up with inflation in July, which will save 3.6 billion. Is it important to also involve retirees?
Of course. Pensions represent 25% of public spending. While certain public spending will have to be increased, for the fight against climate change for example, we cannot imagine not making this effort. Because here, we are only talking about 2025, but in fact, we will have to continue for the following years.
“In total, it’s more like 100 to 120 billion euros that we will have to make in terms of recovery efforts. We cannot imagine doing it without involving retirees.”
François Ecalle, former member of the High Council of Public Financesat franceinfo
It’s impossible. It’s not much, ultimately, what is being asked of them there, I think we could ask them more, in fact.
What about the savings measures announced, where should they be made? We talked about medical transport and the number of civil servants as well. What do you recommend for your part?
When we compare our public spending to that of other countries, we see that we spend a little more on almost all items, except justice and security. So, this means that you have to play a little on all the levers. We must both reduce pension expenditure, but also probably resume the trend of reducing numbers in the civil service, not only in the State, but especially in local authorities, which is much more difficult. In health care spending, there is a lot of inefficiency in the system. So there are savings to be made even in the health system, or even in the education system. There is also work to be done in subsidies, in aid, such as the reduction in contributions for businesses that we have spoken about.