French Social Security faces funding concerns

The French Social Security system, known as Sécu, is facing growing concerns over its liquidity and long-term financing, despite being unlikely to go bankrupt and stop paying pensions or benefits. The system is expected to require a sustainable financing solution soon, as budget discussions have not resolved the issue.

Deputies reject Sécu budget

Deputies rejected the first part of the Sécu budget last Friday, prompting the parliamentary chamber to consider passing it forcefully through Article 49 paragraph 3 of the Constitution or through budgetary decrees, both of which could lead to a censure.

Court of Audit warns of unsustainability

The Court of Audit warned that without a turnaround in accounts, "the financing of the Social Security system does not have a sustainable solution today." The general rapporteur of the budget, Thibault Bazin, emphasized that "before long-term state debt becomes a concern, it is the short-term liquidity of social security organizations that could quickly catch up with us," during a meeting organized by the Association of Social Information Journalists (Ajis).

History of Acoss and Cades

The Central Agency for Social Security Organizations (Acoss) was established in 1967 to allow the payment of social benefits while accumulating debt. This fund can make short-term loans to bridge the gap between the payment of certain social benefits and the receipt of contributions.

Cades and its financial role

In 1996, the state created the Cades, the Social Debt Amortization Fund, to transfer the short-term debt of the Acoss to a long-term loan fund with lower interest rates. It also decided to create a specific tax for the operation of this fund: the Contribution for the Repayment of Social Debt (CRDS) at a rate of 0.5% of income. The Cades is also funded by part of the Generalized Social Contribution (CSG).

Cades extension and looming risks

The government decided to extend the existence of the Cades until December 31, 2033, through a law adopted in 2020. Three imminent risks are present: the debt ceiling that the Acoss can manage, which is set at 85 billion euros for 2027; the need to transfer 100 billion euros of debt from the Acoss to the Cades by the end of 2027; and the need to extend the end date of the Cades to take over the deficits of the Acoss. These measures require the adoption of an organic law, which is difficult to obtain without a parliamentary majority.

Long-term financing concerns

Thibault Bazin is also concerned about the financing of the Cades itself in the long term. If the markets become increasingly wary of the idea of lending money, interest rates could increase, and the Acoss would have to pay more of its revenues to interest, leaving less for social benefits. Ana Carolina Cordilha, an associate professor and researcher at the University of Rennes 2, estimates that the reductions in social contributions on low wages, strengthened by Emmanuel Macron in recent years, represent about 80 billion euros per year in lost revenue for the Social Security system.

Calls for reform and caution

The executive still believes in maintaining the deficit at 12 billion euros in 2027 and avoiding an unsustainable situation regarding the financing of the Social Security system. Thibault Bazin concluded that "in the coming months, even if it is not the end of the world for anyone, let's avoid it being the night for some."