Public deficit. Sweden, Ireland, Portugal… how are the good students in Europe doing to reduce the debt?

Public deficit. Sweden, Ireland, Portugal… how are the good students in Europe doing to reduce the debt?

The highly anticipated 2025 finance bill was presented last week by the new government. The Prime Minister, Michel Barnier, is committed to containing the deficit to 5% of GDP next year, thanks to an effort of 60.6 billion euros mainly targeted at businesses and tax increases.

If France is up against the wall in budgetary matters, other European countries have already found themselves in the same situation and have succeeded in cleaning up their public accounts. Overview of these countries which have managed to get back on track.

Sweden: privatization and pension reform

In the 1990s, Sweden was not in good shape. A serious crisis with bank bankruptcies, significant decline in GDP, soaring public debt and mass unemployment is shaking the country. Today, with a public deficit which amounts to 0.6% of GDP, everything is settled.

To achieve this, the country has carried out fundamental reforms, opening up a number of sectors to the private sector: education, post, telecommunications, retirement homes, employment agencies, etc. It has also tightened access to unemployment insurance, reduced sick leave compensation and reformed its pension system.

“Sweden has a points system, the one that Emmanuel Macron wanted in 2018,” notes economist François Facchini. In this system, the amount you have paid in contributions determines your retirement pension. If you pay less, you have less. »

Sweden also introduced a part of capitalization in its pensions in 1998. There is a basic pension financed by distribution, a supplementary pension by capitalization and a minimum pension for the most vulnerable, accessible from the age of 65.

These reforms were mainly the work of conservative governments. But the Social Democrats also spent sparingly. They have, for example, distributed less aid than France during the pandemic. Today, in addition to healthier finances, the country maintains high public spending and a low level of inequality.

Portugal: drastic austerity plan

A former bad student, Portugal is now top of the class in budget management. The Portuguese state even ended last year with a surplus of 1.2% of GDP.

The land of pastel de nata, however, came a long way. In 2011, hit hard by the economic crisis, Lisbon obtained a loan of 78 billion euros from international creditors. In return, the Prime Minister, Pedro Passos Coelho (center right), is launching a policy of budgetary rigor.

“The economic situation in Portugal in 2011 strangely resembles that of France today,” admits Éric Pichet, public finance expert at Kedge Business School. So, to stem a deficit of more than 8% of GDP, the government massively cuts civil servant salaries and retirement pensions. A drop in spending coupled with an increase in revenue thanks to an increase in VAT, now higher than in France.

The socialist government elected in 2015 puts an end to the drastic austerity policy but continues rigorous budget management.

Ireland: liberal diving

In 2024, Ireland will display excellent economic health. This was not always the case. After the global crisis of 2008, the island found itself on the brink of collapse. The public deficit increased from 7% in 2008 to 14% in 2009, then 32% in 2010. A slippage such that the country was placed under international surveillance.

So, Ireland embraces the liberal model without restraint. Civil service numbers are reduced, salaries fall, working hours increase, social spending is frozen, then lowered, and the retirement age is raised to 66 in 2014.

“Unemployment and retirement represent a large part of public spending in all countries. The more assets you have, the less spending you have,” says François Facchini, public spending specialist.

So, to attract businesses, the country decides to drastically lower its corporate tax (12.5% ​​compared to 25% for France). Multinationals like Facebook, Apple and Microsoft are setting up shop. “They pay less taxes there thanks to a set of accounting transfers with other countries,” explains François Facchini.

And even if most of their production takes place in other European countries, it is Ireland which reaps part of the profits, attracting strong criticism from the rest of Europe. Corporation tax brings in a third of Irish tax revenue.

The Emerald Isle today records a budget surplus of 24 billion euros, its budget would make any European country green with envy.

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