The chaos in France is a ‘warning signal’ for Australia’s public spending and rising costs
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The explosion of discontent that led to major protests and violence in France and across Europe is a “warning signal” that Australia could follow the same path without an “honest conversation” about the budget, economists say.
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Hundreds of thousands marched in cities across France on Saturday to protest against school underfunding, as complaints of insufficient teacher numbers and dilapidated infrastructure mingled with broader discontent about cost-of-living pressures.
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Here, and across the developed world, people are struggling to cope with the affordability crisis as households grapple with high and rising prices.
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The scale of the challenges in individual countries may be of a different order of magnitude but the grievances are common.
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Luke Hartigan, a senior economics lecturer at the University of Sydney, said it was clear there was no single factor behind the discontent in France but soaring energy costs were having a major impact.
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Fuel prices are up 36% this year in France, or three times the increase in Australia. The US-Israel war on Iran has sent European gas prices soaring as the northern hemisphere approaches winter.
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More fundamental, however, is that France’s finances are buckling under its generous welfare state.
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France’s high public debt, stagnant economy and universal social security benefits have created a “binary” situation, Hartigan said, where citizens’ demands for better services and cost-of-living help are clashing with the country’s increasingly dire fiscal position.
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France has not balanced its budget since 1974. Meanwhile, total public debt as a share of the economy has swelled to nearly 120%, according to the International Monetary Fund.
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Australia’s total government debt pile looks benign in comparison at 53%. But a decade ago our debt was 40% of GDP, and a decade before that it was just under 10%.
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Hartigan said France’s lacklustre economy had compounded its fiscal problems, underlining how Australia needed to work hard to boost productivity.
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“If you think about trajectories, they [France’s challenges] give us an idea of where we could potentially be if we continue down this path,” Hartigan said.
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Bob Breunig, the director of the ANU’s Tax and Transfer Policy Institute, said there was a growing gap between what voters believed the government should be able to do, and what politicians were able to deliver.
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“One thing that is happening everywhere is this narrative that the government should be able to solve all your problems, and that narrative has probably been pushed further in Europe than it has here. It’s failing in both places but it’s pointier there than here,” Breunig said.
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The evidence of this growing demand for government intervention is that French public spending now accounts for 58% of the economy, the IMF data shows.
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In contrast, Australia’s total public spending is equivalent to 40% of our national output – the highest in data stretching back to 1990, outside the pandemic, and at similar levels to the United States and the United Kingdom.
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“All these protesters are asking the government to help them out, but the government has maxxed out the credit card,” Breunig said, who said France’s debt was “reaching levels that are unmanageable”.
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“The federal government here can still borrow and has a lot of flexibility, and the French just have no money.” President Emmanuel Macron’s decade in power has been marked with failed attempts to rein in spending.
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“There’s a real sense that people don’t know what to do,” Breunig said.
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The bond market reflects growing alarm with France’s fiscal trajectory.
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France typically has to pay a higher interest rate on its 10-year debt than fiscally prudent Germany, and the gap between the two rates is a measure of financial markets’ confidence in France’s fiscal position.
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That gap is now at its widest since the European debt crisis in 2011.
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Amid structural pressures on the budget from an ageing population, the NDIS, higher interest rates, and the push for greater spending on national defence, Breunig agreed there were lessons for Australia in not allowing the country to drift too far and for too long.
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“We need an honest public conversation about what the government can be expected to do and what it can’t, and then a conversation about how much that would cost and whether we are willing to pay for that.” While the opposition has attacked what it sees as the deadening effect of high government spending on economic dynamism, Breunig said he was broadly “agnostic” whether repairing the budget involved lower spending or higher taxes.
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“At the end of the day, making these decisions is exactly what democracy is for.”
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