French national finances in bad shape: watchdog

22nd June 2005, Comments 0 comments

PARIS, June 22 (AFP) - French national finances are in a bad way even though the 2004 budget deficit fell owing to unexpected growth, the public accounts watchdog warned on Wednesday.

PARIS, June 22 (AFP) - French national finances are in a bad way even though the 2004 budget deficit fell owing to unexpected growth, the public accounts watchdog warned on Wednesday.

The Court of Accounts, reporting the day after Finance Minister Thierry Breton had warned that France was living beyond its means on debt, said that the improvement in 2004 "must not hide the persistence and seriousness of the overall state of public finances".

In a preliminary assessment to the finance commissions of the National Assembly and Senate before a budget debate in July, it said that "after three years of waiting, the target of improving state finances...was at last achieved" in 2004.

The public deficit had been reduced to EUR 43.9 billion, or by EUR 13 billion from the 2003 figure. This was the biggest reduction in a single year for 20 years.

However, the reduction, the result of unexpectedly strong growth of 2.1 percent in 2004 instead of 1.7 percent as forecast, "remains limited".

The court stressed "the urgency of serious improvement of public finances" and called for greater caution, particularly in forecasting growth, saying that the budget for this year had been based on an "optimistic" reading of the outlook.

On Tuesday, Breton had reduced the target for growth this year from 2.0-2.5 percent to 2.0 percent. The 2005 budget was predicated initially on growth of 2.5 percent.

The court objected that the strong growth which had generated an unexpected increase of tax revenues in 2004 had not been put to use to contain expenditure.

It said that it expected growth this year to be 1.8-2.0 percent which was likely to mean that tax revenues would fall EUR 3.0-3.6 billion short of the amount estimated.

The state was in deficit even before inclusion of the cost of interest on the debt, the court noted. This showed that "the state is in deficit even before it can pay debt interest".

This meant that the debt owed by the state, the main component of the public debt, was increasing. It had risen by 5.7 percent to EUR 935.3 billion, equivalent to 57.5 percent of gross domestic product at the end of 2004.

The net cost of the debt, which had fallen in 2003 "rose by EUR 540 million to EUR 38.1 billion, or the same order of scale as the revenue from tax on companies", the report said.

This exposed France to any increase of interest rates, the court warned.

Real improvements to the state of public finances had been put off until later but growth at the end of 2004 opened the possibility of deeper action on spending and therefore on the deficit and on the debt, the report said.

The government had held to its target of stabilising the volume of spending, excluding the effect of inflation, in 2004 but this was an appearance resulting from many temporary adjustments and "not from structural reforms", the court said

The state had not succeeded in improving public finances substantially. "For the first time for 10 years, local authorities showed a negative result, a deficit of EUR 1.9 billion, at the same time as the state transferred to them responsibilities involving complex finances."

In France the social security and welfare budgets are considerably bigger than the central government budget, and the court said that the budgets for social security and unemployment "are increasingly in deficit", showing a shortfall of EUR 15.9 billion in 2004 from a deficit of EUR 9.8 billion in 2003.

The centre-right government has introduced reforms of social security arrangements, the latest in a long line of moves to try to contain costs.

On Tuesday official data showed that one of the main components was likely to show a deficit this year of EUR 11.6 billion, almost the same as the figure last year of EUR 11.9 billion. But Health Minister Xavier Bertrand said that the estimate showed a break in the rising trend owing to controls on spending since the end of 2004.

Breton had said on Tuesday that France was standing by its target for the public deficit to be 3.0 percent of output in 2005, from 3.6 percent in 2004, and he warned that the cost of paying interest on the national debt next year would soak up the equivalent of all the money collected through income tax.

He said that the debt would amount to EUR 1,100 billion next year.


Subject: French news

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