ETeaching at the Wharton School of the University of Pennsylvania, one of the best business schools in the United States, Sylvain Catherine is among the most promising young French economists. Here is his diagnosis on the economic part of Prime Minister François Bayrou's general policy speech, which The Point asked him to analyze.
The Point: What did the Prime Minister's general policy speech inspire you?
Sylvain Catherine : The most interesting passage was that on the pension deficit, because François Bayrou announced a figure different from that which is usually presented by the reference body on the subject, the Retirement Orientation Council (COR). The COR announces a deficit of around 5 billion euros because it does not take into account the balancing subsidies paid by public authorities, starting with the State, which amounts to presenting things in a truncated manner.
ALSO READ Pensions: towards the end of hidden deficits?However, François Bayrou gave an amount ten times higher, or 55 billion euros. “Of the more than 1,000 billion in additional debt accumulated by our country over the last ten years, pensions represent 50% of this total,” he added, and he announced the launch of a “flash mission” of the Court of Auditors to shed light on this major subject. This is a very good thing, because obtaining more honest figures will finally allow pensions to be debated in a more constructive way.
Moreover, François Bayrou decided not to not suspend pension reformas demanded by the PS, environmentalists and unions…
He did well. Ultimately, the only reasonable solution is not to suspend the current pension reform, which is insufficient, but on the contrary to amplify it. Given the imbalance of 55 billion euros announced by the Prime Minister, there are only three possible choices: increase contributions, raise the retirement age and make the French work more, or reduce pensions.
All comparable countries have made the decision to make their populations work more, because it is the most virtuous solution from an economic and social point of view. It also contributes to increasing all state revenues, and not just to the balance of the pension system. It is surprising to observe that many parties wish to return to the current reform, because whoever takes power in 2027 will not be able to ignore the subject.
The Prime Minister began his speech with a long introduction on the country's spiraling public debt.
This spiral of public debt that France has experienced for fifty years is a French specificity. Most of our neighbors have managed to reduce their public debt in recent years. So there is no reason why we cannot achieve this. We should have done it when the economy was good. Unfortunately, we didn't. However, to get to the point, we cannot ignore an adjustment of around 120 billion euros over seven years. Now that the diagnosis has been made by the Prime Minister, we must get down to business and detail where the cuts will be made.
What budget cuts do you recommend in the short term?
The deficit must be reduced without altering the country's economic growth potential. An immediate solution would be to remove the tax allowance for professional expenses which applies to retirees. By definition, the latter do not have professional expenses since they are inactive. The stake is 4 to 5 billion per year. We can also target learning measures at companies that really need them or cut subsidies for thermal insulation of buildings since the latest studies have proven that they are ineffective. But above all, we will have to encourage the French to work more and limit the taxation that weighs on work in order to sustainably increase growth potential.
-ALSO READ Well-off retirees, PER, donations… The Court of Auditors wants to put an end to certain tax advantagesThe Prime Minister believes that “businesses must be protected against exponential increases in taxes and charges”. However, the Minister of the Economy has just announced that the corporate tax surcharge would be maintained.
Either this tax is temporary and, in this case, it does not solve anything, or it is permanent and then it is a very bad signal sent to the business world and to investors. The most important thing is the signal. However, François Bayrou gave the signal that France must have sincere accounts on the pension system. Now, from a practical point of view, I don't expect much from it.
François Bayrou also says he wants to rationalize the more than 1,000 agencies, bodies or operators who carry out public action…
Let’s hope! However, this effort was announced by many people before him. Jacques Chirac was already talking about it in the 1980s… And then, in the same speech, François Bayrou spoke of a thing that will appear: the Bank of Democracy.
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Kangaroo of the day
Answer
You teach in Pennsylvania. What vision do your American colleagues have of the French economic situation?
My American colleagues consider that Europe is in the process of being downgraded. We observed a real European disconnect after the 2008 crisis, when it was triggered by the United States. Our continent must find the means to pull itself together.
