What should prevail?
March 17, 2023
The French population is declining and getting older (like all other countries) and we cannot continue to work less than in other developed countries. This seems obvious.
The French pension system has the following characteristics:
1) Pensioners retire earlier than any other European countries, raising retirement age from 62 to 64 (over four years) does not seem to be a dictatorship.
2) It is a pay-as-you-go system, the system works if you have enough working people to finance retired people’s pension. Today there are 1.7 contributors for each pensioner at the national level, 0.9 contributors for each pensioner for civil servants, 0.6 for career soldiers. The system is unsustainable even with two more years of work.
3) A PAYG system is based on today’s workers paying for today’s pensioners; therefore, the system to be balanced should have a total amount of contributions equal to the benefits distributed in the same year. If there is a deficit (dear to Keynesians), this means that the government should borrow to finance a pension deficit, and the debt is passed on to future generations (if this is what the socialists call “solidarité”, I am not a socialist).
4) The French pension system is a defined-benefit system, which means that pensioners receive an entitlement; civil and military servants are entitled to receive 70% of their latest salary, and private sector employees receive at least 50% of their 25 years average salary (plus a supplementary pension). Therefore, the pension received by pensioners has nothing to do with the amount collected. If benefits paid out in a year are higher than the contributions, I suppose that there is a deficit in the pension system.
5) In 2021, the total sum (at national level) collected through contributions amounted to €227 bn, the total benefit distributed to the whole retirees population was €345 bn, therefore the deficit of the French pension system was €118 bn or 4.7% of GDP, or 75% of the French general government fiscal deficit of that year. The French pension system is the engine of the French deficit (see jpdumas007.com blog).
6) The French Government is committed to finance this pension for public servants and the private sector. This is a defined-benefit system not sustainable. Today the deficit is financed by subsidies, earmarked taxes and compulsory transfers from surplus scheme (family) to the pension system. Subsidies are public expenditure and are financed either by additional taxes or by borrowing. Do you think that it is normal to finance old-age people who do not produce by taxing the next generations?
7) The Official body (le COR), in charge of projecting the pension system over the next 50 years, considers that the pension budget is balanced today (it considers that subsidies, public transfers and tax allocated are revenue).
I am not sure that people on the street of Paris, trade unions or politicians in the Parliament are fully aware of this reality.
Going back to your article, the Macron Government’s reform is good, but completely insufficient to address the imbalance in the pension-system. I understand that the Macron/Borne reform will reduce public expenditure on pensions by around €11 bn a year, which is completely insufficient for balancing the pension system (which is the Government’s objective).
I think you are quite severe on Macron and his Government. Contrary to what some politicians say, it is perfectly legal to use the article 49.3 and it is in the French constitution. Mr Rocard, who was a socialist PM, used it several times without causing any revolution or criticism from the left at the time. If you followed the debates in Parliament, they were quite unacceptable from a democratic and civilised point of view; therefore the President was obliged to act through the 49.3.
You are right to say that there is a political culture in France that does not favour coalitions and compromises(that is why a proportional system is not feasible in France). But Madame Borne tried hard to reach compromises with the Républicains, she agreed to amend the Government’s original bill to include many of their requirements (which had the effect of reducing the savings) so it is difficult to say that the Government was intransigent and top down.
As for the French opposition to this reform (it is not very pleasant to work longer years), you may notice that this is business as usual for the private sector in France. People in the private sector may tell opinion polls (and complacent journalists) that they are against the reform; they continue to go to work. The main part of streets demonstrators are: protected professions (public utilities and public transport), civil servants, extreme left revolutionaries (black box) and students. If Macron were a real reformist, he would have abolished the abusive system of permanent civil servants’ tenure (which explains the number of strikes in this country due to a protected and rather privileged status).
This is not because raising the retirement age is unpopular that it should not be implemented. The interest of France is greater than the interest of the street.