French Parliament Approves 2014 Budget and Pension Reform

French National Assembly.  Photo: brown

French National Assembly.
Photo: brown

As the 2013 fiscal year comes to an end, President François Hollande, Interior Minister Jean-Marc Ayrault, and the French Parliament have made several commitments to financial overhaul for the coming year. Plagued by discontent over high taxes and proposed pension reforms, President Hollande has set out six goals for the new year, covering political issues such as immigration and European relations. But Hollande is chiefly focused on economic reform: reduction of unemployment, mitigation of taxes, and cutbacks on spending.

In the final month of the year, the French Parliament has managed to address some of these issues, passing a pension reform bill that had been repeatedly rejected throughout the year, and adopting the 2014 budget.  A hotly contested issue by both politicians and the French public, the new pension plan will not be officially adopted until February of 2014, and will only affect individuals born in or after 1958. Throughout the past year, France has been under pressure from the European Union to create a more balanced system, as the generosity of the current plan is on track to cost France more than €20 billion ($26.5 billion) in deficits by 2020. In order to alleviate the financial drain of the pension system on the national economy, the new plan lengthens the amount of time one needs to work in order to receive a full pension.

By 2035 French workers will need to work a full 43 years to benefit from the pension plan, as opposed to the current 41.5 years. This number has been calculated in relation to average life expectancy, attempting to divide the life span into thirds—the first two spent at work, and the third in retirement—with individuals typically retiring around the age of 60. The decree is also meant to absorb the burden of the baby-boom generation that is beginning to reach retirement in France. Exceptions for early retirement are made for French workers performing more difficult jobs, including night workers and certain forms of hard labor.

The 2014 budget plan—agreed upon in the National Assembly (Parliament’s lower house) on December 19—aims at a reduction of the national deficit from 4.1% to 3.6% of GDP over the next fiscal year, as well as a €15 billion ($20 billion) cut on spending. The program also addresses the increasing rate of unemployment, with incentives for competition, investment in information technology, and green initiatives, such a household carbon tax and taxes on transport fuels. The massive cuts on spending caused much controversy within the lower house, with the center-right Union Pour un Mouvement Populaire and far-right Front National parties leading the opposition, though the subject of the greatest consternation continues to be the debate surrounding taxes.  The new budgets plans for €3 billion in revenue from new taxes—but with income tax rates measuring up to 62% for the highest earning bracket, tensions regarding tax reform are high.

In conjunction with the passing of the 2014 budget in Parliament, Interior Minister Ayrault has shown parallel efforts to address taxation issues, announcing on December 19 the formation of a steering committee on tax reform. Designed to demonstrate the administration’s commitment to fiscal improvement, the committee will include both Ayrault and six other relevant minsters, as well as Christian Eckert and François Marc, financial commissioners from the National Assembly and the Senate respectively, and economic advisors of both the President and the Prime Minister. Ayrault hopes that the measure will bring some amount of approval for the government, whose leader, President Hollande, continues to suffer low approval ratings which dipped down to a record low of 20% in November, the lowest presidential popularity rating recorded by the French polling company IFOP since they started measurements in 1958.

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