Economic policy: Has Holland gone astray?

Conducted simultaneously, deficit reduction and supply policy have, since the beginning of the five-year period, led to growth in France, according to the OFCE

“The quinquennium of Fran├žois Hollande: stagnation or recovery?” Even in the title of his study on the economic policy of the last four years, published on Monday, the French Observatory of Economic Conditions (OFCE) refuses to settle. But reading the document, the diagnosis of Holland years leaves pensive. Admittedly, this “supply-side policy”, which has been implemented since 2013 and has led to major tax cuts for businesses, has put the productive fabric of France on the right track. But this choice, largely financed by households, has led to growth. To the point of compromising the expected effects of this policy.

Between the CICE (tax credit competitiveness employment) and the pact of responsibility, the cost of labor will have been lowered, at the end of five years, some 30 billion euros per year (40 billion in the long term with the tax cuts) ). A policy that, according to the authors of the study, allowed to significantly adjust the margin rates of companies, “after a period of severe damage.” The effect has been all the more significant since it has been amplified by an external factor: the increase in the margin rate (two value-added points) is half due to this policy of supply, but also half the fall in oil prices. Nevertheless, this “recovery is particularly spectacular in the industrial sector”, with a margin rate that “reached a level comparable to historical records in the early 2000s. ” In the market services sector, on the other hand, the movement remained more modest.

Another positive point, the drop in the cost of labor has enriched the – weak – the growth of the country in jobs, generating nearly 230,000 additional positions by 2017, according to the OFCE. An assessment complemented by the temporary hiring bonus for SMEs (between 20,000 and 40,000 jobs). The public deficit, finally, should be reduced by 2.4 percentage points of GDP over the entire five-year period, even if the debt, it should have a record 96.5% of GDP, an increase of 11.3 points on 2012-2017.

“Choice of companies rather than purchasing power”

But this supply-side policy concomitantly with fiscal consolidation also has its (big) downside. This “choice of companies rather than purchasing power “, as presented by the OFCE, led France to be, together with Spain, “the great country which has experienced the strongest adjustment in its payroll”. Europe. With purchasing power per household in 2016 still below 350 euros compared to its level of 2010 (beginning of austerity). To have wanted to reduce the public deficit while massively lowering the levies of the companies also led the government to strongly drain the households.

But “the mistake was to underestimate the impact of fiscal austerity on growth,” says Mathieu Plane, OFCE. As a result, the fiscal consolidation policy in France and Europe cost Hexagon nearly half of its growth over the first four years of the five-year period, limiting the rise in GDP to 3.8% between early 2012 and early 2016. Only the decline in oil prices and, in so doing, the first effects of this supply policy have made it possible to limit the scrap.

The government had to double the consolidation effort

What, then, if another economic policy had been conducted? Could France have doubled its growth over this period? “Difficult to say, replies Mathieu Plane, because it is difficult to isolate France from other countries in the euro area, which have all led, more or less, the same fiscal consolidation policy.” And even if the storm on the At the time, the debt had calmed down a bit with debt consolidation, and the continent remained under the threat of the financial markets. In short, “we all fell into this policy of austerity and fiscal devaluation”.

Still, France was not left out, in this desire to lead the two front, with a supply policy that represented, with two points of GDP, the equivalent of the decline in the deficit. In other words, the government has had to double the fiscal consolidation effort (via taxation and/or savings) to ensure both objectives. And without major effect on the job. Whatever the case, according to Mathieu Plane, “a supply-side policy becomes ineffective if there is no demand policy in the face”.