Bercy assures that the “purchasing power” package will not widen the deficits thanks to better tax revenues and bets that the dynamics of the labor market will be maintained in 2022.
Will inflation weigh down public finances? This Thursday the government released the figures for its new “purchasing power” package.
The amount amounts to just under 20,000 million euros. 6,400 million euros for the revaluation of 4% of pensions and social minimums, 4.8 billion for devices in fuel, 4,000 million will be allocated to the compensation of officials with the increase in the index point and 1,000 million to the exceptional aid of 100 euros for the start of the school year that 8 million households should receive. Added to these exceptional measures is the abolition of the canon for public broadcasting, amounting to 3,200 million euros.
These are the expected expenses for the end of the year. But the rise in inflation that began in 2021 has already provided state financial support for purchasing power. Bercy estimates the measures put in place since last October (energy shield, fuel discount, etc.) at 23,000 million euros.
43,000 million euros since last October
This brings the total cost of the support measures to €43 billion (if Parliament validates the latest package on July 18).
Not everything is fully funded by the state; the energy shield, for example, co-financed with EDF and increases in civil servants will be, for a quarter of the expense, borne by local authorities.
Enough to further widen the country’s deficit and debt after more than two years of health crisis and “whatever it takes”? In any case, the Court of Auditors was alarmed this Thursday of the increase in planned public spending not offset by guaranteed tax revenue.
On the Bercy side, however, we are quite calm. Budget deficit forecasts for the current year remain at 5% of GDP.
“Incorporating the financing of these devices, the public deficit forecast for 2022 stands at -5% of GDP), stable with respect to the initial financing law for 2022, we specify in the Ministry of Economy. The cost of the new measures and the downward revision of growth for 2022 due to the war in Ukraine and inflationary pressures being offset by the growth rebound observed at the end of 2021, which is higher than expected and whose positive effect on government revenue continues in 2022.”
Without “whatever it takes”
Thanks to higher-than-expected growth in 2021 and a buoyant labor market, tax revenues were higher than expected. More growth means more income from corporate taxes, more inflation means more VAT (11,000 million euros, of which only 3,000 million in fuel) and more jobs means more social contributions.
In total, this comfortable kitten amounts to 55,000 million euros. The Government will draw from this mattress to finance these exceptional measures to help purchasing power.
Except this providential windfall might not be enough. This is also the warning from the Court of Auditors that the increase in public spending for the current year amounts to 60,000 million. Added to the measures to support purchasing power is the debt burden that will increase with the rise in interest rates (+18,000 million euros) without forgetting the increase in current spending due to inflation. In total, the judges of the rue de Cambon estimate the increase in public spending for the year 2022 at 60,000 million euros.
To assume the cost, Bercy bets: that of a more sustained growth than expected (2.5% today according to ministry estimates) and a still dynamic labor market.
“We are no longer in the price that is”, he assured this Friday in FranceInfo Bercy’s tenant. It is fair and necessary to help those who cannot drive to work. It is in our collective interest.”