The report titled "Lowering Public Expenditure: Lessons from European Experience" published by France Stratégie under the editorial responsibility of the General Commissioner, discusses the high level of public expenditure in France compared to the European Union average. In 2017, French public expenditure represented 56.4% of the Gross Domestic Product (GDP), which is significantly higher than the EU average, and the tax-to-GDP ratio was also at the top among European countries.
The high level of public spending isn't inherently abnormal as it reflects different socialization choices, particularly in areas such as pensions, healthcare, and education. However, this high expenditure raises concerns when it leads to inefficiencies in public policies, cannot be adequately funded through sufficient revenues, jeopardizing debt sustainability, and limiting the government's ability to respond to potential economic shocks.
To address these issues, the report suggests France should aim to reduce its public expenditure, targeting a reduction of about 3 percentage points of GDP over five years, assuming a stable growth rate. This reduction would stabilize public spending volumes. Achieving this goal isn't unattainable; many European countries have managed to cut public expenditure by at least once during the last 20 years, even amidst moderate growth periods, excluding any severe crisis periods.
While there's no single formula to reduce public spending, the study highlights several interesting insights into strategies for cutting public expenditure. The report analyzes the decomposition of the public expenditure-to-GDP ratio in France from 1995 to 2017, showing a continuous increase in the structural component of public spending since 1998.
The report also examines the relationship between public expenditure, tax revenues, and debt levels across European countries, noting that despite higher public spending in France, it often doesn't translate into better outcomes for public policies or higher quality of life indicators compared to other countries. This suggests that there may be opportunities to achieve similar results with lower spending or to improve outcomes with the same level of spending by implementing more efficient public policies.
The high level of public spending and taxation in France poses challenges regarding the sustainability of public debt and maintaining attractiveness relative to neighboring countries. Countries that have made more significant adjustments to their public spending since 2012 now have greater room to reduce taxes and enhance their attractiveness.
Overall, the report emphasizes the need for France to engage in a process of reducing public expenditure, aiming to strike a balance between debt sustainability and maintaining competitiveness, while potentially reducing the burden on taxpayers.
