In a report, Terra Nova tried to measure the economic consequences of the significant increase in public spending desired by the head of Nupes and La France Insoumise.
“Managing needs”. This is how the Nupes leader for the legislative election described the philosophy of his economic program. Instead of favoring a supply policy that favors businesses and private investment, Jean-Luc Mélenchon advocates changing State and public spending.
In his presidential program, the now candidate for the position of Prime Minister has measured his economic program at 250 billion euros per year of spending over the entire five-year term. Or more or less the equivalent of excessive public spending of “whatever its value” estimated at 240 billion euros by Economy Minister Bruno Le Maire.
An estimate revised upwards by the Institut Montaigne, which instead puts the amount of public spending by France’s leader Insoumise at 330 billion euros. In detail, retirement at age 60 costs 85 billion euros per year, 29 billion for its ecological investment plan, 17 billion for the integration of social security mutuals with 100% reimbursement, 18 billion for conscription citizen, 14 billion for job guarantees for long -term unemployed …
In a report for the Terra Nova Foundation, economist Guillaume Hannezo, former adviser to Pierre Beregovoy and François Mitterrand among others, but also worked for Vivendi or Rothschild trying to evaluate the impact of such a program on the country’s economy.
Sometimes compared to François Mitterrand’s “110 proposals for France” program in 1981, especially since returning to retirement at age 60, Jean-Luc Mélenchon’s project would be very far from it.
Spending was seven times higher than in 1981
“The program of public spending and increasing corporate taxation supported by the Union Populaire has nothing to do with the experience in 1981, which is often cited as an example by those concerned, believes the author of the report. Seven times higher as a proportion of GDP, it will immediately result in an explosion of public deficits and unemployment and in an unsustainable dynamics of public debt.
The economist recalled that in 1981, the recovery policy (abandoned after two years) raised the public budget deficit from 2.4 to 2.8% of GDP with an increase in spending of approximately 2% of GDP.
“The orders of magnitude of recovery found in the Popular Union program are of a completely different caliber: the Montaigne Institute, which has conducted a homogeneous volume of programs of different candidates, is estimated at 332 billion euros each. year, or 13% of GDP the additional annual expenditure caused by the program, is estimated by the economist.In spending, the stimulus proposed by Jean-Luc Mélenchon is therefore approximately 7 times greater than in 1981, with public accounts of infinitely lower departures. “
The expenditure would in theory be funded according to the candidate, who estimates the increase in tax revenue generated by tax increases on businesses, wealthy households and the fight against tax evasion at 267 billion euros. Problem is, according to the Montaigne Institute, these projected revenues would prefer to be approximately 113 billion euros per year.
“The difference between the Institut Montaigne’s estimate and the candidate’s (112.7 billion versus 267 billion according to the candidate) comes specifically from additional revenue measures whose materialization is too uncertain to consider, such as revenue that should be expected from a broader fight against fraud and tax evasion (estimated 26 billion by the candidate) or from measures that are not detailed enough to provide an estimate ”, specified the Institut Montaigne.
An inverted competitiveness shock
For companies, the increase in charges (asking for contribution reductions, production taxes, increases in contributions, etc.) would be approximately 56 billion euros.
“The shock thought to be the price competitiveness of companies, in addition to the regulatory shock, is therefore 56 billion, or 2.2% of GDP, 6 to 7 times than in 1981/82, recalls Guillaume Hannezo. SMIC, eliminating the reductions in contributions that have occurred since 2012 would only result in a 14-point increase in the cost of labor. ”
An increase in corporate taxation that will have consequences on competitiveness and employment in the market sector. In fear of returning to major relocations.
“If the movement [d’allègement de charges] coming back the other way, for the worse, we can bet that the growth of productivity gains and offshoring will continue with renewed vigor, the author believes. Recently, OFCE estimated that a “normal” use of labor – corresponding to a return to working hours and productivity increases before the crisis – would bring the unemployment rate to 9.9% in France , compared to 7.4% by the end of 2021. “
Regarding public finances, the difference between planned expenditure and projected revenue estimated at 219 billion euros per year will force the State to call in more foreign capital, i.e., in debt.
“If we add 13% of GDP to spending to the deficit of about 5% expected in 2022, even applying various tax increases, it’s hard to imagine that it won’t end at between 10 and 15%. of the structural deficit, which needs to be financed. by increasing the level of debt by the same amount each year “, the economist expects.
A Greek scenario?
Deficit levels with little equivalent in recent history. And if the United States reaches comparable levels (2009, 2010, 2020), it is on economic stimulus and by issuing a currency – the dollar – which is the global currency and therefore less subject to collapse. And despite this, the country is currently experiencing 9% inflation even though the American economy is less sensitive to the shock of rising energy prices.
“Countries enjoying financial freedom were thrown into economic turmoil before they even reached these deficit levels, Guillaume Hannezo recalled. Argentina ran into a 6 or 8% deficit before collapsing. Venezuela de Chavez made 10-15% deficits, with the results we know. Cuba too. “
To respond to these observations, the authors of Jean-Luc Mélenchon’s economic program implemented the “Keynesian multiplier effect” of recovery. The idea is that every euro of additional public spending boosts activity, leading to an increase in tax receipts, an increase that will offset the deficit generated by initial spending.
Provided, however, that these costs primarily benefit French companies. In recent years, however, gains in purchasing power have further widened France’s trade balance deficits, which reached a record 85 billion euros in 2021. The country does not have sufficient production capacity, imported a large part of its goods and energy to the consumer. particularly.
“Using a common assumption (1% increase in spending increases GDP by 0.8% on average in the short term), which applies only to the extent that the economy has spare production capacity driven by new demand, it is it will be possible to “self-finance” only 50% of the cost of the program … and in just a few years, because the multiplier effect fades after 4 to 5 years according to most models, when wages and prices are adjusting, the economist estimates.the public deficit will therefore remain more than 10% of GDP at the end of five years in any event.
According to the author, risk is a Greek style scenario with debt default followed by a savings remedy.
“Submit, like Syriza [le parti d’Alexis Tsipras au pouvoir lors de la crise grecque]and negotiate with European partners and the IMF on an austerity and bailout plan, by agreeing to lower pensions and social minimums, to massively raise VAT, privatize public companies, to cut off service public ”, believes Guillaume Hannezo.
An austerity remedy that may recall the turn of poverty in 1983 … to the more extreme.