Proposal for a COUNCIL OPINION on the Economic Partnership Programme of France
Date: 2013-11-15
Institutions: European Commission
Subjects: France, budget deficit, budgetary equilibrium, competitiveness, labour market, stability pact, tax reform













EUR-Lex - 52013PC0904 - EN











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52013PC0904

Proposal for a COUNCIL OPINION on the Economic Partnership Programme of France /* COM/2013/0904 final - 2013/0394 (NLE) */









2013/0394 (NLE)
Proposal for a
COUNCIL OPINION
on the Economic Partnership Programme of France

THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the
Treaty on the Functioning of the European Union,
Having regard to
Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21
May 2013[1] on common provisions for monitoring and
assessing draft budgetary plans and ensuring the correction of excessive
deficit of the Member States in the euro area, and in particular Article 9(4)
thereof,
Having regard to the
proposal of the European Commission,
Whereas: 
(1)       The Stability and Growth
Pact (SGP) aims at securing budgetary discipline across the Union and sets out
the framework for preventing and correcting excessive government deficits. It
is based on the objective of sound government finances as a means of
strengthening the conditions for price stability and for strong sustainable
growth underpinned by financial stability, thereby supporting the achievement
of the Union's objectives for sustainable growth and jobs. 
(2)       Regulation (EU) No
473/2013 of the European Parliament and of the Council of 21 May 2013 on common
provisions for monitoring and assessing draft budgetary plans and ensuring the
correction of excessive deficit of the Member States in the euro area sets out
provisions for enhanced monitoring of budgetary policies in the euro area and
for ensuring that national budgets are consistent with the economic policy
guidance issued in the context of the SGP and the European Semester. Since
purely budgetary measures might be insufficient to ensure a lasting correction
of the excessive deficit, additional policy measures and structural reforms may
be required.  
(3)       Article 9 of Regulation
(EU) No 473/2013 sets out the modalities for economic partnership programmes,
to be submitted by euro area Member States under an Excessive Deficit
Procedure. Setting out a roadmap of measures to contribute to an effective and
durable correction of the excessive deficit, the economic partnership programme
should detail in particular the main fiscal-structural reforms, notably those
referring to taxation, pension and health systems and budgetary frameworks,
which will be instrumental to correct the excessive deficit in a lasting
manner. 
(4)       On 27 April 2009, the
Council adopted a decision according to Article 104(6) of the Treaty
establishing the European Community (TEC), whereby France is placed in an Excessive
Deficit Procedure. On 21 June 2013, the Council adopted a revised
recommendation under Article 126(7) of the Treaty on the Functioning of the
European Union (TFEU) in the context of an excessive deficit which was opened
before the entry into force of Regulation (EU) No 473/2013. In this context, France was requested to present an economic partnership programme by 1 October 2013.
(5)       On 1 October 2013, and
thereby within the time frame established by Article 9(3) and 17(2) of
Regulation (EU) No 473/2013, France presented to the Commission and to the
Council an Economic Partnership Programme, setting out in particular fiscal-structural
reforms that aim at ensuring an effective and lasting correction of the
excessive deficit. The Economic Partnership Programme includes measures aimed
at implementing the country-specific recommendations (CSR) addressed to France
by the Council on 9 July 2013: (i) ensuring the long-term sustainability of
public finances (CSR 1) while simplifying the tax system (CSR 5), (ii)
restoring competitiveness through measures to reduce production costs
(CSR 2), improving the business environment (CSR 3) and increasing
competition (CSR 4) as well as (iii) combating unemployment and inequality
on the labour market (CSR 6). 
(6)       The Economic Partnership
Programme focuses on measures which, with very few exceptions, either have
already been implemented or are in the process of adoption. It provides limited
information on the policy strategy of the government for the period up to 2015,
which is the deadline for correcting the excessive deficit. The fiscal-structural
reforms taken or planned by France are the following: (i) measures to reduce
the general government deficit, notably through efforts to contain expenditure
growth, (ii) creation of an independent fiscal council, (iii) reform of the
pension system, (iv) simplification of the tax system (v) reduction in the cost
of labour. Additional structural reforms with a bearing on growth and
competitiveness, and hence an indirect impact on the deficit reduction include:
(i) support to innovation and export capacity of firms, (ii) measures to enhance
competition and efficiency in network industries and in some regulated sectors,
(iii) reform of the labour market, and (iv) support to youth employment. 
(7)       Regarding public finances,
the measures taken seek to comply with the headline deficit targets set forth
in the Council recommendation of 21 June 2013, making specific efforts to
contain expenditure growth, including on healthcare. To that avail, a number of
public policy assessments have been carried out as part of the on-going
spending review and have translated into specific proposals but the expected
savings have not been systematically quantified. In addition, part of the
measures announced so far consist in limiting and/or abolishing tax and social
security exemptions, which will actually raise the tax burden rather than lower
expenditure. More generally, it remains to be seen to what extent the spending
review will indeed result in major reforms of government policies, coverage of
activities by the public sector and delivery modes of public services. The
government has also initiated a decentralisation reform aimed at clarifying the
responsibilities of local authorities and central government in order to
increase the efficiency of local government expenditure. However, it is unclear
at this stage whether this process will indeed contribute to rationalising
local spending and the expected savings have not been quantified. Beyond the
significant amount of savings targeted for 2014, the Economic Partnership
Programme provides little information on measures to improve the
cost-effectiveness of healthcare spending in the medium to long run, including
in the area of pharmaceuticals, in view of the projected increase in this
spending.
(8)       The governance of public
finances has been strengthened in particular through the creation of a High
Council for Public Finances. An independent authority by law, the High Council provides
an opinion on the macroeconomic scenario underpinning draft budgets and
stability programmes and on the consistency of annual fiscal targets with the
multi-annual budgetary strategy. Accordingly, it provided an opinion on the
Stability Programme submitted by France on 30 April 2013 as well as on the
Draft Budgetary Plan.
(9)       The planned pension reform
can be expected to contribute to the long-term sustainability of the pension
system. Measures taken up to 2020 mainly focus on the revenue side, in
particular with an increase in social contributions for both employees and
employers, a measure that the Council had warned against. The government has
committed itself to offsetting the impact of the planned pension reform on the
cost of labour in 2014 through a reduction in family contributions. From 2020,
the contribution period for a full pension will gradually increase to 43 years
in 2035. The planned reform falls short of fully addressing the Council
recommendation as the measures considered are expected to only halve the
financing gap of the pension system by 2020. In this respect, the scope and
specific rules of public sector worker schemes have not been reviewed.
Moreover, the financial gap of the pension system by 2020 could be even higher
than expected if the macroeconomic scenario underpinning the reform proves overly
optimistic, which cannot be fully ruled out based on current economic
developments. The budgetary cost of planned measures to better take strenuous
activities into account is subject to significant uncertainty and is yet
another risk to the financial outlook of the pension system.
(10)     Further efforts have been
made to simplify the tax system and increase its efficiency through a further
cut in tax expenditures and proposals to increase environmental taxation. On the
other hand, beside the measure already adopted in 2013 and whose impact will
increase in 2014, no measures are considered in the Draft Budgetary Plan to further
reduce the debt bias in corporate taxation. Amendments
to the Draft Budgetary Plan after the latter was submitted to the Commission
and the Council will result in a de facto higher corporate income tax statutory
rate for large companies, contrary to the Council recommendation to reduce
statutory rates while broadening the tax base. Furthermore, while value-added
tax rates will change from January 2014, as decided in December 2012, the Economic
Partnership Programme does not include information on measures to further bring
reduced rates closer to the standard rate as recommended by the Council. The
suspension of a green tax on heavy goods vehicles announced by the government
on 29 October appears at odds with the efforts presented in the Economic
Partnership Programme to increase environmental taxation.
(11)     The measures taken by the
government to support cost-competitiveness can be expected to mitigate the
increase in the cost of labour linked to the fiscal consolidation measures
adopted since 2010. In particular, the tax rebate for competitiveness and
employment adopted in December 2012 reduces significantly the cost of labour
for wages below 2.5 times the minimum wage. Beside the commitment to offset the
impact of the planned pension reform in 2014 the government has announced an
upcoming reform of the social security financing in order to diversify receipts
and reduce its impact on the labour cost. However, little information is
available at this stage on the specifics of this reform.
(12)     The Economic Partnership
Programme puts forward a number of structural reforms taken to increase growth
and competitiveness and to fight unemployment. To support competitiveness, the
government has taken measures to ease access to finance for innovative projects
and support exporting firms. Initiatives to simplify the interactions between
companies and the administration have been launched. In addition, the Economic
Partnership Programme mentions targeted measures to increase competition in
some regulated sectors (e.g. notaries, accountants) but these measures fall
short of fully addressing the country-specific recommendations which called for
an ambitious reform in the services sector. A reform of the railway system is also
presented in the Economic Partnership Programme. While this reform seeks to
improve the efficiency of the system, it does not provide for the opening of
domestic passenger transportation to competition, as called for in the
country-specific recommendations. The Economic Partnership Programme also
presents significant measures adopted to fight unemployment although most of
them were known at the time of the Council recommendation. The law of 14 June
2013 on securing jobs, the specific measures to support the employment of young
people and of older workers, as well as the forthcoming reform of vocational
training and apprenticeship are positive steps to improve the functioning of
the labour market and hence increase France's growth potential. By contrast, the
negotiation on the unemployment benefit system has been postponed to 2014,
HAS ADOPTED THIS OPINION: 
The Economic Partnership
Programme of France presented to the Commission and to the Council on 1 October
2013 includes a set of fiscal-structural reforms that is partly adequate to
support an effective and lasting correction of the excessive deficit. The Economic
Partnership Programme provides a comprehensive overview of the measures adopted
prior to the Council recommendation of 9 July. It also includes information on
the additional reforms launched by the time the Economic Partnership Programme
was submitted. However, these will be insufficient to address fiscal and
structural imbalances and little detail on planned reforms to further respond
to the recommendation has been provided. The government proposal
for a pension reform will reduce the deficit of the pension system but will not
suffice to eliminate it by 2020, with notably schemes for state government
officials and employees working in a number of state-controlled companies still
expected to run significant deficits by that horizon and the underlying
macroeconomic scenario appearing too optimistic. The on-going spending
review has delivered only limited outcomes so far and it remains to be seen to
what extent it will translate into sizeable savings. Whether the planned
decentralisation reform will improve coordination between local, regional and
national levels and bring significant savings for the general government as a
whole is also unclear. The Economic Partnership Programme provides
little information on measures to tackle the projected medium- to long-term
increase in public expenditure on healthcare. Moreover, recent
decisions taken by the government in the area of taxation seem to go against the
Council recommendation and create uncertainty about the government's strategy. Finally, the
measures underpinning the government's commitment to reduce the cost of labour
need to be further specified. Overall, while the already legislated reforms are
welcome steps, further efforts to address fiscal and structural imbalances are
required to effectively support a durable correction of the excessive deficit
and the long-term sustainability of public finances. Therefore, France is
invited to submit additional information in the upcoming National Reform
Programme and Stability Programme on the reform efforts to increase the
efficiency of public spending across all sub-sectors of general government and
in particular to achieve better coordination and additional savings between
central and local government levels. Measures to increase the
cost-effectiveness of healthcare expenditure and to avoid that the projected
deficits of public sector worker pension schemes will weigh on the general
government deficit necessitate further explanation. More information is also
needed on the actions planned to further reduce the labour cost and more
generally on the further structural reforms envisaged to increase the
adjustment capacity of the economy and to boost potential growth. The
Commission and the Council will monitor the implementation of the reforms in
the context of the European Semester. 
Done at Brussels, 
                                                                       For
the Council
                                                                       The
President
[1]       OJ L 140, 27.5.2013 p. 11.