2024-09-11 07:00:00
Among the urgent files left by Gabriel Attal to his successor Michel Barnier, there is a particularly poisoned chalice: public finances in complete disarray. According to new estimates from Bercy, France’s deficit for 2024 is expected to slip even further than expected in April, from 5.1% to 5.6% of GDP. A very bad signal given that France is already under surveillance by Brussels for excessive deficit. By sending a letter on September 2 to the parliamentarians responsible for monitoring the Budget, describing the alarming situation, the resigning Minister of the Economy pointed to a culprit: local authorities, which are spending more than expected. “The main risk,” writes Bruno Le Maire, “is linked to the extremely rapid increase in local authority spending, which could alone degrade the 2024 accounts by 16 billion euros. “The local authority deficit would then exceed 20 billion, while it stood at 5.5 billion in 2023 and was zero in 2022.
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For the main parties concerned, mayors, presidents of inter-municipalities, departments or regions, “it’s a huge joke!” summed up Valérie Pécresse, the head of the Ile-de-France region. “A crude and unfounded accusation”, according to the Association of Mayors of France. “Caricature”, “false trial” or “misleading announcements”, the associations of elected officials do not have words harsh enough to send the minister back to his goals. According to them, Bruno Le Maire’s communication operation would simply aim to divert attention from the heavy responsibility that falls on the State in the deterioration of public accounts.
Recruitment difficulties to blame
Valérie Pécresse explained it well: “This increased deficit of local authorities is due to poor anticipation of public revenue by the government. Which knew it very well, by the way.” “In reality, everyone knew that it would not hold up,” assures Christian Escallier, general director of the local authority consultancy Michel Klopfer.
The executive would therefore have shown guilty optimism. In its revenue forecasts but especially in those of expenditure: the government’s stability program, in April, still hoped that local authorities would see a decrease in their operating expenses of 0.5%. While, since 2019, they have increased by 1.1% on an annual average.
In his July report on local financesthe Court of Auditors also warned: “With regard to local public administrations, there is a risk that the expenditure target set by the public finance programming law will not be respected.” And, in August, the State, via its general directorate of local finances, estimated the increase at + 7% (7.5 billion euros).
The cause is personnel costs (+6%) and external charges (+13%). Consequence of the increase in the index point over a full year, salary revaluations and the compensation system, or the use of external services and skills. “Since the end of the health crisis, local authorities have had great difficulty recruiting, which may force them to pay bonuses or outsource missions,” explains Christian Escallier.
Elected officials spend everything they are given
In addition to current expenditure, investment is also exploding: +14.5%. “While the norm is more like +7% at this time of the electoral cycle,” says a government source. “It’s colossal with 1.9% inflation.” However, it was predictable: eighteen months before the municipal elections, the municipalities are at the peak of their work to be able to take advantage of the “ribbon” effect at voting time. “But these are mainly projects related to the energy transition, transport or networks,” adds Christian Escallier. Not the delusions of grandeur of yesteryear.
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“It’s true, the elected officials have calmed down,” acknowledges the (Renaissance) MP for Gers, former general rapporteur for the Budget, Jean-Rene CazeneuveThe problem is that the dynamics of expenditure follow those of revenues. In other words: elected officials spend everything they are given. Hoping that they will reduce their spending without cutting their resources is illusory. However, their own revenues (transfer duties and local taxes) have been particularly dynamic in recent years.
To calm things down, only François Hollande had made a drastic cut in state grants to local authorities, by 10 billion during his five-year term. Under Emmanuel Macron, governments have only given ground. This year, in the first half of the year, state contributions increased by 6%. Find the mistake…
Tax revenues in decline
This is the other warning signal from Bercy on the 2024 public accounts. Tax revenues may not be there, according to the first feedback from the tax administration. However, GDP growth is in line with forecasts, or even a little better. But corporate profits would still be lower than hoped, weakening corporate tax. And VAT revenues would also be weighed down by the slowdown in prices and sluggish consumption, with growth relying more on exports.
Already in 2023, the deterioration of the public deficit came, in large part, from an abnormally low increase in tax revenues. A phenomenon poorly anticipated by the Ministry of Finance, which was still in the euphoria of a 2022 financial year, on the contrary, particularly dynamic, having generated more abundant revenues than expected. The “backlash” observed last year had therefore been described as an “exceptional event” by Bruno Le Maire, the tenant of Bercy. But the bad surprise is likely to be repeated in the 2024 accounts.
By David Bensoussan
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