26 March 2018

2018- n° 79

In 2017, the public deficit reached 2.6% of GDP, the notified debt 97.0% of GDP General government national accounts - first results - year 2017

In 2017, public deficit reached −€59.3 bn, accounting for −2.6% of GDP after −3.4% of GDP in 2016. As a share of GDP, expenditure decreased from 56.5% to 56.5%. Revenues went up from 53.2% to 53.9%. The compulsory levies ratio increased by 0.7 point at 45.4% of GDP (+0.5 point excluding exceptional contribution to corporate income tax).

Total expenditure rose by 2.5% after +1.0% in 2016. The acceleration was more moderate for expenditure excluding interest charges and the refund of the 3% tax on dividends (+2.3% after +1.2%).

Operating expenditures increased by 2.2% in 2017 after 0.7% in 2016. Intermediate consumption and wage compensation accelerated (respectively +2.3% and +2.2% after +0.1% and +0.9% in 2016). The interest charges went down at a slightly slower pace(−3.7% after –3.9% in 2016).

Social benefits rose by +2.1% after +1.8% in 2016. The acceleration of benefits in kind (+2.4% after +2.0%) was driven by health care expenditure, in particular pharmaceutical products. Social benefits in cash rose by +1.9% after +1.7% in 2016 in part due to the prime d'activité.

Other transfers and subsidies accelerated : +6.5% after +0.4% in 2016. This increase is due to the refund of the 3% tax on dividends (+€4.9 bn) and the capital injection into Areva SA (recorded as a non financial operation : €2.3 bn). Subsidies on product increased by €1 bn due to support for renewable energies. Conversely, the contribution to the European Union budget decreased by €4.0 bn since the EU budget was under-executed.

Net acquisition of non-financial assets – fixed assets, stocks and lands as well as intangible non produced assets – increased by 2.6% in 2017 (+€2.0 bn) after a moderate increase in 2016 (+0.4%). The increase is for a large part due to local government investment (+€2.9 bn bn after –€1.3 bn in 2016). This increase was partially offset by a decrease from State Government: –€0.7 bn, due to military equipment.

Taxes on income and wealth increased by 5.2% after +0.6% in 2016. Corporate income tax strongly increased (+€8 bn) while an exceptional contribution to corporate income tax was introduced to offset the refund of the 3% tax on dividends (€4.9 bn). Excluding the exceptional contribution to corporate income tax and the treatment applicable to payable tax credits, corporate income tax was steady (+€0.2 bn) and the total revenue grew by only 3.4%. Social contributions including contribution sociale généralisée (CSG) rose thanks to a dynamic wage bill (+€3.3 bn of which €2.8 bn of CSG). Personal income tax increased by +€0.8 bn in 2017 (after +€1.0 bn in 2016) and the taxe d'habitation (housing tax) by €0.5 bn.

Taxes on products and production increased by 4.6% after +2.4% in 2016. VAT strongly increased by €7.6 bn after +€2.8 bn in 2016, notably due to the recovery of economic activity. Taxes on domestic consumption of energy products (fuels, electricity and natural gas) overall rose by €2.6 bn due in part to the increase of carbon tax. The droits de mutation à titre onéreux (tax on real estate transactions) increased by +€2.1 bn linked to the increase of real estate transactions and the taxe foncière sur les propriétés bâties (land tax) by +€0.8 bn.

Social contributions accelerated (+3.5% after +1.3%) due to a more dynamic wage bill. The employees contributions increased by 3.7% after +1.9% and employers contribution rose by 3.4% after +1.0%.

The reduction in general government net borrowing in 2017 was mainly due to State government (€9.5 bn) and social security funds (€7.3 bn). The latter recorded a net lending, for the first time since 2008 (€5.1 bn). Those reductions are mainly due to more dynamic revenue. To a lesser extent, the Central agencies net borrowing decreased by about €2.0 bn.

Meanwhile the net lending of local government decreased by €2.2 bn due to the rise of fixed capital formation after three years of decrease. The operative expenditure is also dynamic, in particular wage compensation. The transfers from State government to local government decreased by €2.4 bn but this is broadly offset by the increase in taxes.

At the end of 2017, the Maastricht debt accounted for €2,218.4 bn, a €65.9 bn year-on-year growth after a €51.3 bn increase in 2016. Maastricht debt is the gross consolidated debt of the general government, measured at nominal value. It reached 97.0% of GDP at the end of 2017, after 96.6% at the end of 2016. The net public debt had a more moderate growth, reaching 87.7% of GDP after 87.5% at the end of 2016.

The State contribution to debt rose by €64.7 bn, a variation similar to its net borrowing (€64.3 bn). The contribution of central agencies (central government units other than the State) decreased by €1.4 bn, of which €1.3 bn are due to debt relief of CNA (Caisse nationale des autoroutes).

Local government debt reached €201.5 bn at the end of 2017 compared to € 200.2 bn at the end of 2016, an increase by €1.4 bn. Debt of régions and municipalities rose by respectively €0.7 bn and € 0.5 bn.

Despite their net lending of €5.1 bn, social security funds contribution to debt grew by €1.2 bn to stand at €226.1 bn at the end of 2017 since their cash assets significantly increased.