French pension reform leaves big drain on finances

Reuters News
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Posted: Sep 19, 2013 9:23 AM
French pension reform leaves big drain on finances

By Leigh Thomas and Emmanuel Jarry

PARIS (Reuters) - A planned French retirement reform will do little to cut the deficit in public-sector workers' pensions, leaving a big drain on state finances, a government document showed on Thursday.

The European Commission wants France to carry out ambitious structural reforms in return for its decision this year to grant Paris a further two years to cut its overall public deficit below 3 percent of economic output.

The pension reform, one of the most closely watched since President Francois Hollande took office in May 2012, is aimed at plugging a pension deficit expected to reach 20.7 billion euros ($27.6 billion) by 2020 if nothing is done.

But government documents sent to lawmakers together with the pension bill indicate the deficit for public-sector workers' pensions would fall by only 800 million euros under the reform.

As a result the state budget will have to absorb a shortfall of 7.9 billion euros, instead of 8.7 billion without the reform, which the government hopes to quickly push through parliament.

The government says the public-sector pensions deficit will be funded by savings carried out elsewhere in the state budget.

The reform goes much further towards wiping out the deficit for private sector workers, paring it down to only 300 million euros in 2020 instead of 7.6 billion without it.

All in all, including both public and private sector workers, the deficit of the French pension system is set to reach 12.7 billion euros instead of 20.7 billion without the reform, the document showed.

French workers and companies will pay more into public pensions over a longer period of time under the reform, which stops short of raising the statutory retirement age as recommended by the European Commission.

Hollande's government acknowledged last week that the public deficit would be bigger than expected this year and in 2014, with tax revenue coming in weaker than forecast despite a series of hikes since he came to office.

Finance Minister Pierre Moscovici said on Thursday that about a million additional households will have to pay income tax this year because thresholds for paying would not be adjusted for inflation.

(Editing by Ingrid Melander and David Holmes)