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Bloated French public service reforms

Tuesday, March 19 08:27:33

France should conduct a sweeping audit of its public spending to root out wastage of taxpayer money, the OECD said today, forecasting that the euro zone's second biggest economy will barely grow this year.

Under pressure from France's EU partners, President Francois Hollande's government is due to detail in the coming weeks how it will keep reducing its deficit even though Paris has abandoned its 2013 target due weaker-than-expected growth.

With the second highest level of public spending in the OECD after Denmark, the Paris-based Organisation for Economic Cooperation and Development said that there was substantial scope for savings, particularly on pensions, tax collection and bureaucracy at the local and regional levels.

In a biennial review of France, the OECD forecast that the nearly 2 trillion euro economy will eke out growth of only 0.1 percent this year after posting zero growth in 2012, trimming its 2013 estimate from 0.3 percent previously.

Hollande's government had originally built its 2013 budget on expectations for the economy to grow 0.8 percent but is revising its estimates after acknowledging that that is too optimistic.

The weaker-than-expected growth has eroded a pillar of Hollande's fiscal credibility by forcing the government to abandon promises to cut the public deficit this year to an EU-imposed limit of 3 percent of gross domestic product.

The OECD forecast that the target would only be met in 2014 and that France would post a deficit of 3.5 percent this year. However, it estimated that when taking swings in the economic cycle into account, Paris' deficit-reduction efforts were still largely on track.

The OECD said France was right not to add additional fiscal austerity on an economy already on the brink of recession even though there was room for the government to be more thrifty with taxpayer money.

"Existing and proposed public spending at all levels of government should be subject to thorough efficiency analysis in order to phase out or eliminate items found to be ineffective, badly targeted or unjustifiably distortionary," the OECD's report said. ( C) Reuters