Presidential 2022: “More and more debt, beware of taxes!”

It is both sad and unbelievable, but despite public spending exceeding 60% of GDP and a public debt close to 120% in our “dear France”, no candidate in the 2022 presidential election dares to claim a frank and plausible fall in these two historically high ratios. On the contrary, behind some nuances, of course, all candidates agree on one thing: government spending still needs to be increased, and to hell with deficits and debts!

This is certainly a side effect of the coronavirus pandemic and its famous “at all costs”. Indeed, since the national debt has increased by almost 500 billion euros in two years, and this without noticeable consequences for government bond interest rates thanks to the abundant “printing of money” BC, no one now dares to tell the French people what debt mismanagement and government spending is not only abnormal, but, above all, dangerous for our future and the future of our children.

We must no longer forget that despite these copious spending, France’s annual GDP in 2021 is still 1.6% lower than in 2019. Similarly, the explosion of public spending and debt over thirty years and even before the pandemic failed to restart the structural growth of the French economy, which, moreover, has declined from about 2.5% in the 1980s to at best 1% over the past fifteen years. . It should be remembered that increasing debt is absolutely no guarantee of good economic health.

However, unfortunately, despite these bitter failures, indicating the low efficiency of public spending in France, all candidates call for a further increase in the latter. The argument is almost always the same: since the debt is allegedly worthless, there is no reason not to increase it further. However, no offense to too many fortune-tellers and fortune-tellers, we must stop lying to the French. This impetuous impulse “by all means” will cost us and our children dearly, even grandchildren.

To understand this, all you need to do is ask yourself an important question: who will pay for the skyrocketing public debt in the past and future? In fact, there are four possible answers, which can also be combined. The best would be a quick return to strong growth. Indeed, let’s not forget that high public debt is not necessarily catastrophic if and only if it is sustainable, that is, it generates strong enough growth to pay off at least one year of debt maturity. The problem is that, in the current environment of economic weakness and a sluggish recovery looming over the coming years, few countries seem to be making it. For reference, remember that France has never come here since 2007.

Hence the second palliative answer: rising inflation. History has indeed shown that very often high inflation made it possible to pay off the debt almost painlessly. However, we must not forget that if inflation rises too sharply, as is currently the case, and activity remains erratic, incomes will not be able to follow it, further worsening household purchasing power and weakening growth or even leading to a recession that will fuel unemployment, which means deficits and debts, and the infernal machine will continue…

That’s when a third solution seems to be gaining more and more consensus: debt relief. This is what all over-indebted and/or defaulted countries have done throughout history. What we often forget to remember is that after that, these countries were sent into nation ban for a long time. In addition, this “solution”, once it becomes technically feasible (a highly far-fetched hypothesis), will lead to a sharp increase in lending rates, which will exacerbate the recession, and increase unemployment, causing a new outbreak of the deficit. and debt, not to mention the financial, social and social risks that may arise.

To do this, it should be emphasized that, despite the war in Ukraine, which could have prompted the idea of ​​returning to falling interest rates on government bonds, the latter continue to rise and even reach forgotten levels. summer 2018, especially in France. In other words, the era of free debt is over, and any new phase of debt expansion will exacerbate pressures on bond and loan interest rates, jeopardizing the chances of sustained growth in the coming years. No luck, it is this miraculously strong growth that almost all presidential candidates are counting on to finance their “election promises”.

In this context, the fourth solution may well be imposed, especially since it has almost always been applied, especially in France. It’s about raising taxes. French leaders and presidential candidates may trumpet that nothing will happen, can we justifiably believe them?

Moreover, last year the IMF continued to recommend that over-indebted states increase their tax burden, especially on assets and savings. In other words, dear savers in France and around the world, get ready to pay for the mistakes of your dear states! The tragedy is that France already ranks first in the world in terms of tax pressure, a further increase in the latter will further stifle growth, which will shrink the tax base and therefore increase the deficit and debt. Therefore, it is urgent to stop giving the impression that the outbreak of French public debt will be painless. On the contrary, it will have to be repaid, and if strong growth does not return, this will inevitably lead to higher taxes.

In conclusion, we must stop hiding our faces: it is no longer acceptable for our country to be the number one power on the planet in terms of public spending and one of the first in terms of public debt. But, unfortunately, none of our candidates has the courage to say so. A pity !

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Mark Tuati, Economist, President of ACDEFI

His new book “RESET – What’s the New World Tomorrow?” has topped the list of best-selling budget essays since its release on September 2, 2020.

Mark Tuati

You can also find his video chronicles on his YouTube channelthe last of which is “Russian default, rising inflation… who will pay?”

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