the “unrealistic” savings program of the Institut Montaigne

The liberal institute examined the measures to be taken to contain the deficit and public debt over the next five years. A program “very difficult to accept by the population”, according to the admission of its editors.

“Such a savings program is very difficult for the population to accept and therefore unrealistic.” The Montaigne Institute does not hide this in its latest note on public finance: its savings proposals are not to be taken literally. But “it is still essential to open this debate with the arrival of the presidential elections, since the situation of our public finances is worrying”, underlines the liberal think tank close to the current government.

Important conclusion of the note: Government spending could be difficult to contain. They are on “a trend growth scenario”, according to the authors, Vianney Bourquard and François Écalle. Although they have increased by 27 billion annually over the past decade, they could increase by 41 billion annually between 2022 and 2027. Enough to bring the deficit to a maximum of 5% of GDP in 2027 and the debt beyond 120 %, if no action is taken by the executive at that time.

Uncertainties and pensions

Social spending would be the main factor in the accelerated drift of public finances, outside the Maastricht criteria (3% maximum deficit and 60% public debt). The increase in expenditure, of 1.2% in annual volume, would come “essentially from the social security administrations, and more particularly from pensions and health care”, underlines the note.

The remainder of the increase would then be attributable to the expenditure of the State and its operators, and to local authorities.

But the scenario, like any macroeconomic projection, is not free from methodological risks: growth, inflation and interest rates remain inherently difficult to predict. All the more so in the context of a severe economic shock such as the pandemic:

In particular, growth in the coming years will depend on the future consequences of the health crisis on the country’s production system. However, economists are currently unable to understand what the productivity trend could be following the Covid crisis.

The Institut Montaigne also notes that new needs could emerge and call into question the calculation of public expenditure: expenditure for ecological purposes, which the Court of Auditors estimates at 145 billion euros a year; wage increases in the public sector; increased spending on research and higher education.

Unacceptability of the measures

To overcome this scenario, the authors propose several key measures, which translate into savings of the order of 63 billion euros per year, or almost the necessary sum of the 70 billion that the Institute deems necessary to save.

Therefore, the reduction of the minimum retirement age, by two quarters, would reduce the deficit by 17 billion in five years and the de-indexation of all old-age pensions for three years would make it possible to obtain identical savings.

In the health sector, a return of the evolution of health expenditure (ONDAM) to an annual growth of 2.5%, little more than between 2010 and 2019, would save public finances 15 billion euros.

Failure to replace one in four retired civil servants, and the stabilization of the workforce of the local Public Administration (currently increasing by 1% per year), would lead to 3 and 2 billion respectively.

But the Institut Montaigne assumes that these measures are not politically valid, given the context:

It is important to specify that the measures presented below are
examples intended to give readers some orders of magnitude. They have the advantage of presenting a solid reliability in terms of encryption. However, this list is not exhaustive and some of these measures, in the current context, are neither desirable nor realistic.

If the precise measures are not to be understood literally, the global context remains worrying, according to the think tank, which invites reflection on the level of public debt, in an inflationary context that could soon prompt the ECB to stop its expansive monetary policy. , which currently supports national finances.

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