Public finance might not be an exact science but neither is it an occult science. Unexplained phenomena are rare in that field. And yet that is just what happened at the end of 2023, when the teams at France’s economy ministry had to reveal the existence of a €21 billion hole in the public coffers: Taxes that had not flowed in as they should have; or, at least, as they were expected to.

A €21 billion discrepancy with projections is unheard of outside a period of crisis. It’s almost as much as the amount the government has been forced to save this year. This discrepancy explains the rise of the 2023 public deficit to 5.5% of GDP, compared with the 4.9% that had been forecast; provoking a political storm a few months before the European elections and fueling the dangerous accusation of incompetence.

France’s Economy Minister Bruno Le Maire has promised to investigate, and blamed it on everything from the slowdown in inflation, which has affected VAT revenues and social security contributions; to the banks, which are said to have paid less corporate tax; the energy companies, which he has not managed to tax as much as expected; to their regulator, which had incorrectly estimated what their “superprofits” were; and even on the real estate crisis, which had penalized property transfer duties.

Political procrastination

For the opposition parties, the answer was clear: The government ignored the warnings of its own departments; and those of experts such as the High Council of Public Finance (HCFP), which had, for example, said that the real estate market situation would have a greater impact on public finances than the government had anticipated. Perhaps. In recent years, the same people have criticized the treasury department of the economy ministry for deliberately underestimating its tax revenue forecasts; both to manufacture pleasant surprises after the fact, and to allow for the possibility of discreetly financing new spending during the year, without increasing the public deficit. Duly noted.

The treasury department based its 2023 revenue forecasts on those observed in 2022 and 2021, with some slight adjustments. The problem was that those two years turned out to have been exceptional, combining a very strong upswing in activity (6.4% growth in 2021 and 2.5% in 2022) and unusually high inflation, which is very favorable for tax revenues. Unluckily, 2023 turned out to be less prosperous. The economy ministry’s powerful management has now been accused of having been too optimistic. A little political procrastination was no doubt added to all this.

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