September 15, 2015 / 8:01 AM / 4 years ago

France to run deficit on welfare system until at least 2020 - audit body

PARIS, Sept 15 (Reuters) - France will not balance the books of its generous welfare system until at least 2020 as deficit-reduction efforts slow markedly this year, the state audit office said on Tuesday.

The government has told its European Union partners it will cut its public deficit - which includes the social security deficit - to 3.3 percent of economic output next year from an estimated 3.8 percent in 2015.

The social security deficit, which includes health insurance, pensions, work insurance and family benefits, has gradually fallen from a peak in 2010.

But the Cour des Comptes audit office said that after a modest drop of 2.2 billion euros to 13.2 billion euros ($14.9 billion) in 2014, the 13th straight year in the red, welfare deficit reduction will slow notably this year.

Welfare spending will continue to rise steadily in 2015, while revenue will grow less strongly than in 2014, the audit office said in its annual report.

“This trend will delay the return to a balanced situation to beyond 2020, in the best of cases,” the quasi-judicial body said. The government had forecast a return to breakeven in 2017.

The auditor urged the government to rein in spending, especially on health insurance, which accounts for half of the shortfall. It said the deficit was increasingly funded by short-term debt, making it vulnerable to a rise in interest rates.

The government has so far largely avoided painful cuts to welfare spending seen in other euro zone countries, instead choosing to raise taxes.

France’s social security system is mostly financed by taxes on both employers and employees paid directly into an array of social security funds, rather than to the central government.

Comparing France with Germany, which has a largely similar system, the audit office said that from 2000 to 2014 the German health insurance system had run an overall surplus of 12 billion euros compared with a 105 billion euro deficit in France.

Over the same period, Germany’s pension system ran a 16 billion euros surplus, while the French system clocked up a 65 billion euros shortfall. ($1 = 0.8846 euros) (Reporting by Michel Rose; Editing by Hugh Lawson)

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