Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of France and delivering a Council opinion on the 2019 Stability Programme of France
Date: 2019-06-05
Institutions: European Commission, Secretariat-General
Subjects: France, economic policy, economic reform, investment, labour market, pension scheme, public expenditure, stability pact, stability programme, tax system

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   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 510 final  Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of France and delivering a Council opinion on the 2019 Stability Programme of France    
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2019 National Reform Programme of France and delivering a Council opinion on 
the 2019 Stability Programme of France 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof,  

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On 21 November 2018, the Commission adopted the Annual Growth Survey, marking 
the start of the 2019 European Semester for economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  21  March 
2019.  On  21  November  2018,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission also adopted the Alert Mechanism Report, in which it identified France 
as one of the Member States for which an in-depth review would be carried out. On 
the  same  date,  the  Commission  also  adopted  a  recommendation  for  a  Council 
recommendation on the economic policy of the euro area, which was endorsed by the 
European  Council  on  21  March  2019.  On  9  April  2019,  the  Council  adopted  the 

1 
2 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 

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recommendation  on  the  economic  policy  of  the  euro  area  (‘Recommendation  for  the 
euro area’).  

As a Member State whose currency is the euro and in view of the close interlinkages 
between the economies in the economic and monetary union, France should ensure the 
full and timely implementation of the Recommendation for the euro area, as reflected 
in recommendations (1) to (4) below. In particular, measures to use windfall gains to 
reduce  public  debt,  to  rationalise  public  expenditure  and  to  focus  economic  policy 
related  to  investment  in  the  specified  areas  will  help  address  the  second  euro  area 
recommendation  as  regards  rebuilding  fiscal  buffers,  improving  public  finances  and 
supporting  investment.  Measures  to  simplify  the  tax  system  and  reduce  regulatory 
restrictions  will  help  address  the  first  euro  area  recommendation  as  regards  the 
business  environment.  Finally,  measures  to  improve  employability  will  help 
addressing the third euro area recommendation as regards the functioning of the labour 
market. 
The 2019 country report for France3 was published on 27 February 2019. It assessed 
France’s progress in addressing the country-specific recommendations adopted by the 
Council  on  13  July  2018,  the  follow-up  given  to  the  recommendations  adopted  in 
previous years and France's progress towards its national Europe 2020 targets. It also 
included  an  in-depth  review  under  Article  5  of  Regulation  (EU)  No  1176/2011,  the 
results  of  which  were  also  published  on  27  February  20194.  The  Commission’s 
analysis  led  it  to  conclude  that  France  is  experiencing  macroeconomic  imbalances. 
The  imbalances  identified  relate  in  particular  to  high  public  debt  and  weak 
competitiveness dynamics in a context of low productivity growth.  

On  26  April  2019,  France  submitted  its  2019  National  Reform  Programme  and  its 
2019  Stability  Programme.  In  order  to  take  account  of  their  interlinkages,  the  two 
programmes have been assessed at the same time. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  ('ESI  Funds')  for  the  2014-2020 
period.  As  provided  for  in  Article  23  of  Regulation  (EU)  No  1303/2013  of  the 
European  Parliament  and  of  the  Council5,  where  it  is  necessary  to  support  the 
implementation of relevant Council recommendations, the Commission may request a 
Member  State  to  review  and  propose  amendments  to  its  Partnership  Agreement  and 
relevant programmes. The Commission has provided further details on how it would 
make use of that provision in guidelines on the application of the measures linking the 
effectiveness of the ESI Funds to sound economic governance6.  

France is currently in the preventive arm of the Stability and Growth Pact and subject 
to the transitional debt rule. In its 2019 Stability Programme, the government plans the 
headline deficit to increase from 2.5% of GDP in 2018 to 3.1% of GDP in 2019 and to 
gradually  decline  thereafter  to  1.2%  of  GDP  in  2022.  The  planned  increase  of  the 
headline deficit in 2019, which is confirmed by the Commission 2019 spring forecast, 

SWD(2019) 1009 final. 
COM(2019) 150 final. 
Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 
laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social 
Fund,  the  Cohesion  Fund,  the  European  Agricultural  Fund  for  Rural  Development  and  the  European 
Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European  Regional 
Development  Fund,  the  European  Social  Fund,  the  Cohesion  Fund  and  the  European  Maritime  and 
Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320). 
COM(2014) 494 final. 

(2) 

(3) 

(4) 

(5) 

(6) 

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(7) 

(8) 

(9) 

is mainly due to the one-off deficit-increasing impact of the transformation of the tax 
credit on employment and competitiveness into a permanent reduction of employers’ 
social  contributions.  Based  on  the  recalculated  structural  balance7,  the  medium-term 
budgetary  objective  —  a  structural  deficit  of  0.4%  of  GDP  —  is  not  planned  to  be 
achieved over the period covered by the 2019 Stability Programme. According to the 
2019  Stability  Programme,  the  general  government  debt-to-GDP  ratio  is  expected  to 
increase  from  98.4%  of  GDP  in  2018  to  98.9%  of  GDP  in  2019  and  to  decline 
thereafter  to  96.8%  in  2022.  The  macroeconomic  scenario  underpinning  those 
budgetary projections is plausible. At the same time, the measures needed to support 
the planned deficit targets from 2020 onwards have not been specified. 

On 5 June 2019, the Commission issued a report under Article 126(3) of the TFEU, as 
the Stability Programme planned a headline deficit in breach of the 3% of GDP Treaty 
reference  value  in  2019  and,  based  on  notified  data,  the  transitional  debt  rule  was 
prima  facie  not  complied  with  in  2018.  The  report  concluded  that,  following  an 
assessment  of  all  the  relevant  factors,  the  deficit  and  debt  criteria  as  defined  in  the 
Treaty  and  in  Regulation  (EC)  No  1467/1997  should  be  considered  as  currently 
complied with. 

On 13 July 2018, the Council recommended France to ensure that the nominal growth 
rate  of  net  primary  government  expenditure8  does  not  exceed  1.4%  in  2019, 
corresponding  to  an  annual  structural  adjustment  of  0.6%  of  GDP.  Based  on  the 
Commission  2019  spring  forecast,  there  is  a  risk  of  a  significant  deviation  from  the 
recommended adjustment path towards the medium-term budgetary objective in 2019. 

In  2020,  in  view  of  France's  general  government  debt  ratio  above  60%  of  GDP  and 
projected  output  gap  of  0.7%,  the  nominal  growth  rate  of  net  primary  government 
expenditure should not exceed 1.2%, in line with the structural adjustment of 0.6% of 
GDP stemming from  the commonly  agreed adjustment matrix of requirements under 
the  Stability  and  Growth  Pact.  According  to  the  Commission  2019  spring  forecast 
under  unchanged  policies,  there  is  a  risk  of  a  significant  deviation  from  that 
requirement in 2020. France is prima facie not forecast to comply with the transitional 
debt rule in 2019 and 2020. Overall, the Council is of the opinion that the necessary 
measures should be taken as of 2019 to comply with the provisions of the Stability and 
Growth Pact. The use of any windfall gains to further reduce the general government 
debt ratio would be important. 

(10)  Efforts  to  consolidate  government  finances  have  only  modestly  reduced  the  public 
expenditure  ratio,  which  at  56%  in  2018,  remained  the  highest  in  the  EU.  A  steady 
decrease in public debt will depend on the government’s ability to curb its spending. 
Since 2017, the government has rolled out a renewed fiscal consolidation strategy over 
the  five-year  presidential  term.  Its  success  will  depend  on  meeting  planned 
expenditure  targets  defined  for  the  central  and  local  governments  and  for  the 
healthcare system.  

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8  

Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology 
Net  primary  government  expenditure  comprises  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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(11)  Expenditure  on  healthcare  has  steadily  increased  over  time.  Total  expenditure  was 
estimated  at  11.5%  of  GDP  in  2017,  the  highest  level  among  the  EU  countries 
adhering to the Organisation for Economic Cooperation and Development (OECD). A 
new reform of the healthcare system was announced in the autumn of 2018 and a draft 
law  was  presented  on  13  February  2019.  Its  success  will  depend  on  the  set  up  of  a 
clear legal and organisational framework that provides the right incentives and fosters 
collaboration  between  public  and  private  actors.  The  announced  reform  of  the 
healthcare  system  does  not  include  a  revision  of  the  growth  norm  for  healthcare 
expenditure  (Objectif  National  de  Dépenses  d'Assurance  Maladie,  ONDAM).  This 
spending norm covers a third of social security spending. Although this objective has 
been met since 2010, the ONDAM target has already been increased three times since 
2017.  It  was  increased  for  2018-2020,  from  an  initial  target  of  2.1%  growth  to  a 
revised  target  of  2.3%  in  the  budget  law  for  2018,  and  was  further  increased  up  to 
2.5%  in  the  social  security  budget  act  for  2019.  This  will  reflect  to  some  extent  the 
additional expenses to be incurred by ‘Ma santé 2022’. 

(12)  At  local  level,  public  spending  exceeded  the  planned  growth  target  in  2017.  Since 
2014,  the  public  expenditure  of  the  local  government  in  France  is  guided  by  an 
expenditure  norm  indicating  yearly  non-binding  growth  targets  for  both  operating 
public  expenditure  and  financing  needs  at  local  level  (Objectif  d'évolution  de  la 
Dépense Locale). In 2018, this expenditure norm was accompanied by legally binding 
contract  agreements  between  the  state  and  71%  of  the  322  biggest  local  authorities, 
valid in  2018-2020. The limited reduction in  the number of municipalities, however, 
might hamper compliance with the expenditure norm. The territorial reform of 2014-
2016  reduced  the  number  of  regions  by  half,  but  the  number  of  municipalities  only 
slightly decreased and remained above 34 000, by far the highest in the EU.  

(13) 

Implementing the renewed fiscal consolidation strategy rolled out by the government 
for  the  five-year  presidential  term  also  requires  the  still  not  fully  defined  ‘Public 
Action 2022’ programme to be carried out. This programme aims to deliver substantial 
efficiency  gains  for  government  spending  while  improving  the  functioning  of  the 
to 
national  public  administration.  The  government  has  given  clear  priority 
methodological and process-related aspects, but has not focused on ex-ante and across-
the-board  quantification  of  potential  savings.  While  this  approach  may  stem  from  a 
complex  reform  process  and  the  need  to  smoothen  the  public  debate  over  sensitive 
issues, it also makes it difficult to assess in quantitative terms the overall strategy and 
its  contribution  to  fiscal  consolidation.  In  particular,  it  is  not  clear  how  exactly  and 
with  what  timing  the  reform  programme  —  including  the  Ministries’  transformation 
plans  that  include  a  wide  set  of  varied  measures  —  would  contribute  with  concrete 
actions  to  the  very  specific  objective  of  reducing  the  expenditure-to-GDP  ratio  by 
2022.  Overall,  available  information  shows  partial  adherence  to  the  guidance  for 
spending reviews agreed in 2016 by the Eurogroup.  

(14)  Sustainability risks for general government debt remain high in the medium-term. The 
high  general  government  debt  and  structural  general  government  deficit  pose 
sustainability challenges, especially in the medium-term. A fiscal effort that translates 
into a decisive improvement in France’s structural primary balance would be essential 
to  avert  such  risks.  Reducing  the  general  government  debt  ratio  would  also  improve 
growth prospects and the resilience of the French economy.  

(15)  The planned pension reform could help to decrease the general government debt over 
the  medium-term  and  therefore  reduce  debt  sustainability  risks.  The  budgetary 
is  highly  dependent  on  macroeconomic 
equilibrium  of 

the  pension  system 

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assumptions.  According  to  the  latest  annual  report  by  France’s  Pensions  Advisory 
Council (Conseil d’orientation des retraites), pension expenditures were at 13.8% of 
GDP in 2017 and are projected to reach 13.5% in 2022, before remaining in a range 
between  11.6%  and  14.4%  by  2070  depending  on  the  growth  rate  assumed  for  the 
evolution of GDP and employment over time. More than 40 different pension schemes 
co-exist in France. These schemes apply to different groups of workers and functions 
according to different sets of rules. A draft law is expected by the end of the year to 
progressively  unify  the  rules  of  these  schemes,  with  a  view  to  simplifying  the 
functioning  of  the  pension  system  notably  to  improve  its  transparency,  fairness  and 
efficiency. 

(16)  The  employment  rate  continued  to  increase  and  reached  71.3%  in  2018.  The 
unemployment  rate further declined, reaching  9.1% in  2018, but  remains  well above 
the  EU  average  (6.8%)  and  the  euro  area  average  (8.2%).  In  addition,  the  French 
labour market remains highly segmented. Almost 85% of new hires are on temporary 
contracts and the transition rate to permanent contracts is among the lowest in the EU. 
Involuntary part-time work is also very high, at 42.3% of total part-time work in 2018. 
The planned reform of the unemployment benefit system (Unédic) is aimed to tackle 
labour  market  segmentation  by  reducing  incentives  for  hiring  on  very  short-term 
contracts and recalls, and to reduce the debt of the system. Negotiations between social 
partners  on  the  unemployment  benefits  system  took  place  at  the  beginning  of  2019. 
The aim was to i) reduce the debt of the system, ii) amend the rules in order to reduce 
job insecurity and make the rules more conducive for the unemployed, and iii) find an 
incentive  mechanism  to  reduce  incentives  to  hiring  on  very  short  term  contracts. 
However, social partners did not find an agreement on a new set of rules. The reform 
is now in the hands of the government, which is committed to finding an agreement by 
the summer 2019.  

(17)  Labour market  conditions  for vulnerable  groups remain comparatively more difficult 
than for other groups. The employment rate for non-EU born people, at 57.5% in 2018 
(against  73.1  %  of  those  born  in  France),  is  one  of  the  lowest  in  the  EU.  Evidence 
shows  that  people  with  a  migrant  background  tend  to  be  disadvantaged  during  the 
recruitment process. Their geographical concentration in poor neighbourhoods is also a 
matter of concern.  Inhabitants  of  the  most  deprived  areas  (such  as  Quartiers  de  la 
politique  de  la  ville),  including  people  with  a  migrant  background,  continue  to  face 
difficulties  on  the  labour  market,  with  an  unemployment  rate  of  24.7%  in  2017. 
Despite some policy action, the impact of socioeconomic and migrant background on 
educational performance remains high and hampers labour market integration.  

(18)  Low skilled and young people also remain at a disadvantage in the labour  market. The 
unemployment rate of the low skilled declined in  2017 for the first  time since 2008, 
but  at  16.2%  in  2018,  it  remains  well  above  pre-crisis  levels.  Youth  unemployment 
(ages  15-24)  decreased  by  1.6  percentage  points  in  2018  to  20.7%,  but  is  still  well 
above the EU average of 15.2%. The unemployment rate of low-skilled young people 
is  still  very  high,  at  35.6%  in  2018.  Effective  active  support  to  find  employment, 
including  intensive  job  counselling  and  recruitment  support,  access  to  up-skilling 
actions, innovative measures to reach out to the most vulnerable young people not in 
education, employment  or training and firmer action on discriminatory  practices, are 
all  key  to  fostering  equal  opportunities  on  the  labour  market.  The  outermost  regions 
are confronted with additional challenges and deserve particular attention. 

(19)  As  labour  market  conditions  improve,  several  indicators  point  to  skills  mismatches. 
While  unemployment  and  under-employment  remain  high,  shortages  of  skilled 

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workers  are  increasing,  especially  in  specific  sectors.  Skill  shortages  and  lack  of 
competencies  are  key  factors  explaining  unfilled  job  vacancies.  According  to  data 
from  France’s  Pôle  Emploi,  in  2017,  out  of  3.2  million  registered  job  vacancies, 
150000 were cancelled due to the lack of suitable candidates. Evidence suggests that, 
during  the  crisis  and  the  subsequent  recovery,  an  increase  in  skill  mismatches 
contributed  to  unemployment  declining  at  a  slower  rate  and  to  higher  long-term 
unemployment.  Labour  market  outcomes  of  initial  vocational  education  and  training 
are improving. The Government introduced a comprehensive set of actions in 2018 to 
increase  access  to  initial  and  continuous  training  and  revise  the  governance  and 
financing  of  the  vocational  education  and  training  system.  Complementing  these 
reforms, the skills investment plan (Plan d’investissement dans les compétences) aims 
to train and provide intensive guidance to 1 million young people not in employment, 
education or training and to 1 million low-qualified jobseekers over the period 2018-
2022.  

(20)  Overall,  the  French  social  protection  system  is  effective  in  reducing  inequality  and 
poverty. The proportion  of people at  risk of poverty and social  exclusion has further 
decreased to an historical low of 17.1% in 2017, compared to an average of 22.4% in 
the  EU.  However,  income  inequality  remains  well  above  the  pre-crisis  level. 
Moreover, upwards transition  across income quantiles has  gone down, especially for 
the lowest quintile. Some groups, among which single-parent families and people born 
outside the EU face an increased risk of poverty and social exclusion. Counselling for 
minimum  income  beneficiaries  is  not  always  sufficient,  with  wide  territorial 
discrepancies.  Further  and  better  coordinated  investments  in  social  inclusion,  as 
envisaged by the national strategy against poverty presented in September 2018, could 
help  to  tackle  these  challenges.  While  the  performance  of  the  health  system  is  good 
overall, regional disparities in access to services could benefit from further investment, 
especially in the outermost regions. 

(21)  Despite recent initiatives, France has not been able to reduce its gap with the Union’s 
innovation  leaders  according  to  the  European  Innovation  Scoreboard.  Investment  in 
research  and  development  has  remained  stable  and  new  companies  have  difficulty 
growing.  Overall,  France  is  not  on  track  to  meet  its  total  research  and  development 
intensity target of 3% for 2020 and the level of research and development investment 
from  the  business  sector  is  still  far  below  the  2%  target.  Public  expenditure  on 
research  and  development  is  above  the  Union  average  and  includes  a  wide  range  of 
direct  and  indirect  support  schemes  to  business  research  and  innovation  efforts, 
including the research and development tax credit scheme (Crédit d’Impôt Recherche), 
which  is  one  of  the  most  generous  among  OECD  countries.  However,  the  overall 
performance of the research and development and innovation ecosystem does not yet 
match  the  large  amount  of  public  support.  While  the  existing  tools,  including  the 
Crédit d’Impôt Recherche, were recently evaluated, a comprehensive evaluation of the 
overall  policy  mix  would  help  feed  the  implementation  of  future  policy.  The 
Innovation  Council  (‘Conseil  de  l'innovation’),  set  up  in  July  2018,  is  tasked  with 
supervising  the  simplification  measures,  which  include  better  coordination  between 
regional  and  national  support  to  innovation.  Closer  links  between  science  and 
business,  notably  through  knowledge  transfer  schemes,  could  also  help  spread 
innovation, as France continues to score below the Union average for public research 
and development  financed by businesses. Support  to  competitiveness  clusters  (‘pôles 
de compétitivité’) has been renewed for a fourth phase (2019-2022) and priority will 
be given to clusters organisations well connected with others structures at local level, 
focused  on  national  industrial  priorities  and  with  a  track  record  in  EU  projects.  The 

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Innovation  and  Industry  Fund  (‘Fonds  pour  l’innovation  et  l’industrie’),  financed 
through  privatisations,  will  also  help  to  provide  funding  for  artificial  intelligence. 
Timely  development  of  related  technologies,  such  as  the  Internet  of  things,  5G 
networks, high performance computing and, more generally, the data economy, will be 
one  of  the  keys  to  the  success  of  these  initiatives.  Major  differences  among  regions 
also exist in terms of regional investment in research and development and innovation 
performance.  Several  rural  regions  or  regions  in  industrial  transition  rank  below  the 
EU average. The outermost regions are at the low end of the scale. 

(22)  At  present,  France  is  performing  well  in  energy  and  climate  mitigation  policy  and 
remains on track to reach its 2020 greenhouse gas reduction target. However it needs 
to step up significantly its investment efforts to reach its 2020 renewables and energy 
efficiency  targets,  as  well  as  its  more  ambitious  2030  climate  and  energy  targets, 
notably in the deployment of renewables and the energy efficient refurbishment of the 
building  stock.  As  more  than  half  of  the  current  funding  for  those  investments  is 
publicly driven, economic and regulatory conditions would have to make the financing 
of projects more viable for the private sector in order to tap into significant investment 
opportunities.  Accelerating  the  penetration  of  renewables  in  the  heating  and  cooling 
sector  represents  a  particularly  large  untapped  potential.  High  investment  needs  also 
concern energy efficiency in buildings. This is particularly the case for the renovation 
of the housing sector, which accounts for a large share of the total climate investment 
gap,  as  the  majority  of  the  housing  stock  is  old  and  contains  7  to  8  million  thermal 
sieves  (representing  around  20%  of  the  total  number  of  housing).  The  percentage  of 
building stock reported to satisfy high-energy efficiency standards is lower for firms in 
France  (25%)  than  in  the  Union  as  a  whole  (39%)  in  2017.  Significant  regional 
differences  prevail  in  the  energy  sector.  Energy  intensity  is  decreasing  in  almost  all 
regions, but at differing paces, and considerable differences exist in the penetration of 
renewable  energy.  Additional  investments  in  interconnections  could  contribute  to 
greater  integration  of  the  internal  EU  energy  market,  while  introducing  more 
competition and facilitating the deployment of renewable energy, in particular with the 
Iberian Peninsula. 

(23)  The 2018 national circular economy roadmap (Feuille de Route Economie Circulaire) 
is an ambitious policy framework for resource efficiency, whose implementation will 
hinge  on  ensuring  the  corresponding  investments.  Although  the  contribution  of 
recycled  materials  to  the  overall  material  demand  (circular  material  use  rate)  is  well 
above the EU average (19.5% vs. 11.7% in 2016), recycling rates for municipal waste 
are still slightly below the EU average (41.8% vs. 46.4% in 2016). In this regard, the 
adoption of a law on the circular economy will be a step forward, including for a wider 
use  of  secondary  raw  materials,  notably  plastics.  New  resource-efficient  business 
models  and  production  processes,  including  industrial  symbiosis,  need  to  be  further 
promoted,  in  particular  among  small  and  medium-sized  businesses.  This  can  be 
facilitated by the development of innovative financial instruments and funding for eco-
innovation. 

(24) 

Investments  to  improve  connectivity,  especially  in  more  disadvantaged  areas,  could 
help  address  inequalities  within  the  Member  State.  France  scores  below  the  Union 
average for access to fast broadband network, and fast broadband take-up is low (20% 
of  households  against  41%  in  the  Union  on  average  in  2018).  The  use  of  mobile 
broadband services is also still below the Union average. Broadband coverage varies 
greatly across regions and remains limited in a few rural areas and outermost regions. 
France’s  plan  for  ultra-fast  broadband  (Plan  France  Très  Haut  Débit)  and  related 

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measures  are  expected  to  significantly  contribute  to  the  country  reaching  its 
connectivity targets. It will be essential to closely monitor the implementation of these 
measures,  particularly  in  areas  with  poor  coverage,  given  the  predominantly 
decentralised  approach  and  potential  bottlenecks  if  not  enough  skilled  workers  are 
available to roll out the network. 

(25)  Despite ongoing efforts to increase certainty for taxpayers (Loi pour un État au service 
d'une  société  de  confiance,  ESSOC  law)  and  simplify  the  system,  the  French  tax 
system continues to be very complex, which weighs on the business environment. The 
tax  code  encompasses  multiple  rates  systems  and  tax  expenditures  (tax  credit, 
exemptions,  tax  reductions).  This  complexity  often  aims  to  achieve  specific  policy 
goals,  like  alleviating  the  tax  burden  on  the  most  vulnerable  households  and 
incentivising or correcting specific behaviours. However, it risks resulting in a loss of 
readability,  thus  increasing  compliance  costs  and  legal  uncertainty  detrimental  to 
France’s attractiveness while creating loopholes. 

(26)  Streamlining  tax  expenditures  and  reducing  the  number  of  small  taxes  could  help 
further  simplify  the  tax  system.  Total  tax  expenditure  is  estimated  at  4%  of  GDP  in 
2019.  Unlike  the  previous  multiannual  framework,  the  current  budgetary  framework 
(2018-2022) does not  provide a spending limit  for tax expenditures.  It  sets  instead  a 
non-binding  target  of  28%  for  the  ratio  of  tax  expenditures  to  the  sum  of  net  tax 
revenues and tax expenditures. While the budget law for 2018 planned a tax spending 
ratio below the target (28%) set in the 2018-2022 multiannual budgetary framework, 
this ratio is set to increase in the future (25.5% at the end of 2018 and 26% in 2019).  

(27)  The  2019  budget  tables  a  decrease  of  the  overall  amount  of  tax  expenditures  below 
EUR 100 billion, putting an end to a five-year period of constant increases in volume. 
Between 2018 and 2019, however, the number of tax expenditures has increased from 
457 to 474. In 2018, the Court of Auditors recommended streamlining the existing tax 
expenditures  and  pointed  their  lack  of  control  and  evaluation.  Efforts  to  discontinue 
taxes  which  bring  limited  revenue  or  that  are  inefficient  should  be  pursued.  In  the 
budget  law  for  2019,  26  taxes  yielding  low  revenues  have  been  cut,  20  were 
eliminated in 2019 for a total amount of EUR 132 million and 6 are to be eliminated in 
2020  for  a  total  amount  of  EUR  208  million.  The  elimination  of  small  taxes  is 
expected to continue in 2020 at the same pace. 

(28)  Other taxes on production continue to weigh on businesses. Taxes on production stood 
at 3.1% of GDP in 2016, higher than Italy (1.4%), Spain (1.0%) and Germany (0.4%). 
Such  taxes  have  different  tax  bases  (turnover,  added  value,  salaries,  land  and 
buildings) and can increase the overall cost of production. This could have a negative 
impact on competitiveness in particular for the manufacturing sector. The 2019 budget 
law cuts only one tax on production (‘forfait social’) levied at national level and worth 
EUR 660 million per year (once fully implemented in 2020). 

(29)  Despite progress  and the adoption of ambitious  reforms,  barriers to  entry persist and 
competition  in  business  services  and  regulated  professions  remains  low.  The  new 
OECD  intra-EEA  services  trade  restrictiveness  index  shows  that  the  level  of 
regulatory restrictiveness in France is higher than the European Economic Area (EEA) 
average  in  sectors  such  as  accounting,  legal  services  and  distribution  services.  Main 
barriers  arise  in  the  form  of  restrictive  authorisation  requirements,  reserves  of 
activities, shareholding and voting rights requirements. In the retail sector, France has 
carried out a number of reforms to reduce the regulatory burden. However a number of 
operational restrictions still affects the efficiency of retail businesses and puts them at 

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a  disadvantage  compared  to  e-commerce.  In  this  context,  the  retail  sector  growth  in 
France  is  rather  modest.  The  2019  National  Reform  Programme  detailed  new 
measures to strengthen competition in a few specific services sectors (such as driving 
schools, property management companies and the sales of automotive spare parts). On 
4 April 2019, the Competition Authority presented its opinion to ease restrictions on 
the  distribution  of  medicines  while  maintaining  a  high  level  of  public  health 
protection. 

(30)  Barriers  in  services  have  led  to  low  competition,  high  profit  margins  and  prices, 
harming  the  competitiveness  of  the  whole  economy.  Churn  rates  are  lower  in  key 
business services in France compared to the rest of the EU. The lack of competition in 
services combined to high labour costs have helped to keep prices high, notably in real 
estate transactions, housing, catering and legal and accounting services. Since the costs 
of these services are also borne by other firms using them as inputs, they represent an 
additional factor weighing on France's competitiveness, including on industry. 

(31)  The  PACTE  law  (loi  relative  à  la  croissance  et  la  transformation  des  entreprises) 
aims to support the growth and transformation of firms.  It will reduce the number of 
thresholds  firms  face  as  they  grow,  although  remaining  thresholds  have  become 
broader in scope and more costly to overcome. It also introduces a five-year transition 
period before considering that a threshold has been reached and encourages small and 
medium-sized  businesses  to  use  incentives  and  participation  schemes  for  employees 
linked  to  a  firm’s  performance.  Finally,  it  provides  simplified  procedures  to  start  or 
register businesses and introduces new rules to help entrepreneurs get a second chance. 
It  also  reduces  the  time  and  costs  of  insolvency  procedures,  notably  for  small  and 
medium-sized businesses, including  by making them more predictable.  According to 
the French administration’s own estimates, the potential impact of the law on GDP is 
an  increase  of  0.32%  by  2025  and  by  1%  in  the  longer  term.  Its  full  and  timely 
implementation remains key to reap the benefits of this reform. 

(32)  The programming of EU funds for the period 2021-2027 could help address some of 
the  gaps  identified  in  the  recommendations,  in  particular  in  the  areas  covered  by 
Annex D to the country report9. This would allow France to make the best use of those 
funds  in  respect  of  the  identified  sectors,  taking  into  account  regional  and  territorial 
disparities and the special situation of the outermost regions. 

(33) 

(34) 

(35) 

In  the  context  of  the  2019  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  France’s  economic  policy  and  published  it  in  the  2019 
country  report.  It  has  also  assessed  the  2019  Stability  Programme  and  the  2019 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed  to  France  in  previous  years.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  France,  but  also  their 
compliance with Union rules and guidance, given the need to strengthen the Union’s 
overall  economic  governance  by  providing  Union-level  input  into  future  national 
decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  2019  Stability 
Programme and its opinion10 is reflected in particular in recommendation (1) below. 

In the light of the Commission’s in-depth review and this assessment, the Council has 
examined  the  2019  National  Reform  Programme  and  the  2019  Stability  Programme. 

9 
10 

SWD(2019) 1009 final. 
Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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Its recommendations under Article 6 of Regulation (EU) No 1176/2011  are reflected 
in recommendations (1) to (4) below. 

HEREBY RECOMMENDS that France take action in 2019 and 2020 to: 

1. 

2. 

3. 

4. 

Ensure  that  the  nominal  growth  rate  of  net  primary  expenditure  does  not  exceed 
1.2% in 2020, corresponding to an annual structural adjustment of 0.6% of GDP. Use 
windfalls  gains  to  accelerate  the  reduction  of  the  general  government  debt  ratio.  
Achieve  expenditure  savings  and  efficiency  gains  across  all  sub-sectors  of  the 
government, including by fully specifying and monitoring the implementation of the 
concrete measures needed in the context of Public Action 2022. Reform the pension 
system  to  progressively  unify  the  rules  of  the  different  pension  regimes,  with  the 
view to enhance their fairness and sustainability. 

Foster labour market integration for all job seekers, ensure equal opportunities with a 
particular  focus  on  vulnerable  groups  including  people  with  a  migrant  background 
and address skills shortages and mismatches.  

Focus  investment-related  economic  policy  on  research  and  innovation  (while 
improving  the  efficiency  of  public  support  schemes,  including  knowledge  transfer 
schemes), renewable energy, energy efficiency and interconnections with the rest of 
the Union, and on digital infrastructure, taking into account territorial disparities. 

Continue  to  simplify  the  tax  system,  in  particular  by  limiting  the  use  of  tax 
expenditures,  further  removing  inefficient  taxes  and  reducing  taxes  on  production. 
Reduce regulatory restrictions, notably in the services sector, and fully implement the 
measures to foster the growth of firms.  

Done at Brussels, 

For the Council 
The President 

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