Hollande urged to rein in France's social security deficit

Reuters News
Posted: Sep 13, 2012 12:48 PM
Hollande urged to rein in France's social security deficit

PARIS (Reuters) - France must make politically painful cuts to its social security deficit to keep it from spiraling out of control, the state audit office said on Thursday, warning that a gap of billions of euros was unique among euro zone countries.

President Francois Hollande's Socialist government has pledged to cut the overall public deficit to 3 percent of GDP in 2013 from 4.5 percent this year, in what is likely to be the biggest belt-tightening effort in 30 years.

While he is focusing on raising taxes and keeping state spending in check, the Cour des Comptes audit office said that it was vital to also cut the deficit of France's vast welfare system to zero over the coming years.

Didier Migaud, head of the audit office, said that the overall deficit of French social security stood at 0.6 percent of GDP in 2011 compared with a euro zone average of zero.

"None of our European neighbors accept having their social security accounts out of balance over time," Migaud told journalists after presenting an annual report on social security.

France's generous social security system, whose financing shortfall accounts for about 12 percent of the overall annual public deficit, is mostly financed by taxes on both employers and employees paid directly into an array of social security funds, rather than to the central state.

So far, there has been little talk in the corridors of power about raising those taxes or cutting spending, although the government says it will confront the deficit in 2013.

France, which has the highest level of public spending among developed nations after Denmark, is avoiding painful cuts to pensions and welfare payments that some euro zone countries struggling with debt have been forced to accept.

With the social security debt already at 147.4 billion euros ($190 bln) in 2011, failure to rein in the deficit could lead to 60 billion euros being added to the burden by the end of the decade, the audit office said.

That would have to come on top of 62 billion euros already planned to be transferred over the period to CADES, the agency that manages France social security debt.

"The deficit in the social security accounts is an anomaly and an injustice for future generations," Migaud said, adding that servicing its debt cost 15 billion euros a year.

The audit office estimated that the deficit for the body covering most private sector workers would reach 14.7 billion euros this year, down from 17.4 billion euros in 2011. That would still be nearly 1 billion euros over the amount budgeted by the government.

Migaud said France risked "an infernal spiral of the social security deficit if new measures are not taken", flagging possible savings in the transport of sick people and cutting tax breaks for pensioners.

(Reporting by Jean-Baptiste Vey and Leigh Thomas; editing by Jason Neely)