Economic Survey of France 2011

 

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A moderate recovery is underway, though the major recession is going to leave lasting traces on public finances and employment. Against the backdrop of bond market turmoil in some euro area countries, the highest priorities are fiscal consolidation, raising employment rates and spurring productive supply.

Better employment outcomes would greatly ease the pressure on public finances, and boost social cohesion and living standards. Efforts must be continued to overcome the main job market weaknesses: an onerous level of labour taxation, on top of a high minimum wage; substantial segmentation of employment contracts; the poor quality of labour/management dialogue; and active measures to support employment that could be developed further.

There needs to be a clean break with the deterioration of public accounts to avoid jeopardising macroeconomic stability. The 2010 pension reform testifies to the authorities’ determination in this area. The government’s projected pace of consolidation to 2014 is appropriate, but the measures that can make it happen should be spelt out rapidly. In the medium term, the objective should be to reach budget balance.

Public finances have deteriorated

 1. Provisional data for 2010.

 Source: INSEE; OECD Economic Outlook 88 database and OECD calculations.

Download underlying data in Excel

To consolidate this effort and bolster the government’s credibility, a stricter budget framework including constitutional authority should be adopted, consisting of a structural deficit rule, multi- year budget planning and an independent fiscal council. Deficit reduction should focus on curbing spending, making government more efficient and doing a better job of controlling ageing related outlays. As to revenues, it is necessary to keep scaling back inefficient tax expenditures and to consider raising the least harmful taxes, including those on environmental externalities, property and VAT.

The housing market can be improved significantly. Public policies should focus more on three axes: means tested personalised aid; direct and effective support for supply in strained areas, in particular via the social sector, which should refocus on disadvantaged households; and reducing certain impediments to the functioning of markets so as to make supply more responsive, the market more fluid and distortions more limited.

To achieve this, social housing rents for households with above median income should be brought closer to market values, and the index for adjusting private sector rents should be revised. Priority should be given to: updating the registry of property values for tax purposes; reducing the tax breaks associated with principal residences; gradually shifting the taxation of transactions to property taxes; making building plots available and raising land use coefficients. Reforming social housing would also entail the consolidation of HLM organisations at a “supra municipal” level and revising the way social housing is assigned. Lastly, the government should assess France’s unique social housing funding mechanism through a cost/benefit analysis that takes into account the probably substantial distortions it is apt to generate.

Environmental policies should ensure abatement costs for greenhouse gas emissions are minimised by harmonising them across energy sources. In particular, taxes should be raised on natural gas, coal, home heating oil and diesel fuel, while tax expenditures on fuels for certain heavy users should be reduced, based in particular on abatement costs. The costs of treating nuclear waste should be better accounted for and the management of municipal waste and water pollution improved.

How to obtain this publication

 

The complete edition of the Economic Survey of France is available from:

 

Additional information

For further information please contact the France Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat's report was prepared by Hervé Boulhol and Balázs Egert under the supervision of Peter Jarrett. Research assistance was provided by Patrizio Sicari.

www.oecd.org/eco/surveys/france

 

 

 

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