It’s no surprise, the year 2020 will be remembered in the annals for having driven public finances into the red.
The budget deficit is expected to be -195.2 billion euros in 2020, before shrinking somewhat in 2021, to -152.8 billion euros, the Ministry of Economy and Finance announced during the presentation of the Finance Bill for 2021. However, this deficit will still be double what it was in 2019 (-72.8 billion euros).
During the presentation of the 2021 budget, for the first time, the executive provided a more or less reliable estimate. By the end of 2020, the budget balance is expected to be -195.2 billion euros. For comparison, this budget deficit is much higher than that of 2019 (-72.8 billion euros) and also much higher than what the executive forecasted for the year 2020 when drafting the budget at the end of 2019 (-93.2 billion euros).
Why such a drop in the budget balance? In 2020, public finances found themselves in a bind: on the one hand, it was necessary to finance emergency measures in support of the economy and households; on the other hand, due to the collapse of consumption during the lockdown and the tax incentives granted to businesses, budget revenues plummeted. Net tax revenues decreased by 46.2 billion euros. The measures implemented by the state to cope with the crisis (partial activity, solidarity funds, mask purchases, etc.) meanwhile led to an increase in spending of 46.9 billion euros.
The support measures for the economy are expected to continue in 2021. The government has decided to reduce business taxes by 10 billion euros from January 1, 2021. This reduction will be permanent. The targeted taxes affect production factors (payroll, investment, productive capital in particular), which make French companies, especially industrial ones, less competitive. State expenditures are expected to increase by 42.7 billion euros, reaching 490 billion euros. Public spending, in volume, is expected to grow by 0.4% in 2021, after +6.3% in 2020.
For 2021, the executive is counting on a marked improvement in the budgetary situation. By the end of 2021, the budget balance is expected to be -152.8 billion euros (an improvement of 42.4 billion euros compared to the forecast for 2020). The public deficit is expected to shrink to 6.7% of GDP, representing an improvement of 3.5 percentage points of GDP compared to 2020 (10.2% of GDP).
