France is currently grappling with significant political and economic challenges. Prime Minister François Bayrou recently survived his third no-confidence vote in less than a month, maintaining his position amidst ongoing political turmoil. The political landscape has been fraught with tension since President Emmanuel Macron dissolved the lower house of parliament in June 2024, leaving the nation in a state of political paralysis.
The Prime Minister's decision to use Article 49.3 to push through the 2025 budget has been a controversial move. This maneuver allows the government to pass legislation without a parliamentary vote, highlighting the urgency of addressing France's financial conundrums. The 2025 budget aims to slash €30 billion in spending while raising taxes by €20 billion, all in a bid to limit France's deficit to 5.4% of GDP for the year.
A recent flash report by the Court of Auditors has shed light on the country's financial health, specifically focusing on the pension system. The report contradicts earlier claims by Prime Minister Bayrou regarding the pension scheme's cost. The court projects that the pension scheme will cost about €15 billion by 2035 and approximately €30 billion two years later. This starkly contrasts with Bayrou's previous estimates and underscores the urgent need for reform.
The pension reform, passed under Élisabeth Borne's government in March 2023, increased the retirement age from 62 to 64. Despite its implementation, the reform remains deeply unpopular among the French populace. According to the Court of Auditors, while this adjustment will stabilize the deficit at around €5 billion for the next five years, it is insufficient to address the broader fiscal challenges. The debt from pension schemes could balloon to €470 billion by 2045 if more comprehensive measures are not taken.
The Court of Auditors' assessment indicates that France's overall deficit stands at 6.1% as of the end of 2024, with pension schemes from local authorities and hospital employees contributing significantly to this issue. They argue that even higher per capita labor productivity or a reduced unemployment rate would not substantially mitigate the efforts needed to restore balance.
"Neither higher per capita labour productivity than assumed (1% per annum instead of 0.7%), nor the eventual reduction in the unemployment rate to 5% (instead of 7%) would significantly reduce the efforts required to return to balance," – The court
The report also highlights some positive aspects, noting that French pensions will continue to grow over this period, excluding inflation considerations. This suggests that French pensioners may fare better than their counterparts in other OECD countries.
Despite these positives, the looming debt and deficit remain grave concerns. The court warns that the later retirement age will be offset by an increase in life expectancy, further complicating long-term financial stability.
"The later retirement age would be offset by an equivalent increase in life expectancy." – The court
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