By Nick Mann | 19 March 2013
France needs to review existing and planned government spending to address rising levels of public debt, the Organisation for Economic Co-operation and Development said today.
In its latest Economic survey of France, the OECD said there was ‘substantial scope’ to cut public spending. In 2011, France had the highest ratio of government spending as a percentage of its gross domestic product of any OECD country.
France’s economy is expected to grow by just 0.1% this year after remaining stagnant last year and the OECD said any improvement in the economic outlook would depend closely on reducing ‘inefficient’ public spending. ‘Crucial’ reforms aimed at reducing high structural unemployment and making French firms more competitive were also needed, it said.
Angel Gurria, the OECD’s secretary general, said: ‘The French economy has tremendous assets and considerable potential, but excessive regulation and high levels of taxation are gradually eroding its competitiveness.
‘France has a unique opportunity today to implement a bold and ambitious reform strategy that will restore public finances, create jobs and boost firms’ competitiveness. A more productive and more competitive French economy is not only a national goal, but an important element of a stronger Europe.’
In particular, the country’s government was urged to gradually phase out spending items that were found to be ‘ineffective, badly targeted or distortionary’. It should also take action to reform the structure and financing of its ‘complex’ system of local government, including merging smaller municipalities and abolishing its middle level of local government – the départements.
State spending on pensions is among the highest in the OECD, and France should ‘rapidly’ adjust the parameters of its pension system to limit spending in both the short and medium terms. It should also phase out special pension regimes, such as the system used for state-owned companies, where employees receive higher pension benefits than their peers in the private sector.
Health care also offers potential for cost savings, the OECD said. France should rationalise hospital care to rely more heavily on outpatient care and reduce drug costs.
It warned, however, against further tax hikes to reduce France’s debt and deficit. France’s high levels of public employment as a percentage of its total workforce – 23% of French workers are in the public sector – requires high levels of taxes that ‘weigh heavily’ on the economy, the OECD said.
‘Therefore, fiscal consolidation should involve a decrease in the spending ratio, allowing taxes to be cut in the medium term without undermining equity. This is essential for improving the competitiveness of firms,’ it added.
