Is the sale by the State of its family jewels a good deal for the public finances? The state will certainly find immediate revenue it could go through for the tax, but it deprives consideration of future earnings.
Why does the State sell some of its interests?
The movement is not new. Since 1986, the state sold all or part of the capital of 49 companies. The banking sector, which had been nationalized in 1982 after the election of François Mitterrand, for example, was fully privatized. And for ten years, but rather the sale of shareholdings. In other words, the state sells business tips in which it is a shareholder (majority or minority), without the company’s control do is modified. Thus, since the beginning of the year, Bercy has sold twice the shares of energy company Engine, born from the merger of GDF and Suez. A first time on 10 January, with 4.1% of the transferred capital, with some 1.1 billion euros. And rebelote September 5, to 1.53 billion. However, the State has not lost its blocking minority, 33% of the voting rights through a series of actions that count double.
The reasons for these equity sales are rarely ideological. The government either left or right, it comes to generate new revenues without increasing the tax burden, often electorally penalizing. However, the use of money collected varies. They can be used to deleverage the national accounts, in perpetual deficit or to finance tax cuts, as was the case under the Chirac government (1986-1988) and Balladur (1993-1995). Bruno Tinel, Professor of Economics at the University of Paris I and specialist in public finances, however, warns against asset sales solely intended to reduce the tax burden, “It is destabilizing public finances because of a decline taxes must then fund it every year. ”
Between 1986 and 2016, the state has collected a total of 124 billion euros from the sale of his family jewels. It was during the second mandate of Jacques Chirac, between 2002 and 2007, the movement was strongest, with 31 billion in revenue. The coalition government of Lionel Jospin (1997-2002) is second with 22 billion euro sale of public assets. This time, the economy minister, Bruno Le Maire, talking about 10 billion sales of public shareholdings. History to preserve the surprise effect on the financial markets, the list of the companies remains secret. nevertheless prominently Orange, Aéroports de Paris, the French game.
What will the money be used?
It will serve to honor the candidate’s campaign promise of creating a Macron innovation fund with 10 billion euros and which should be released in 2018. Its management should be entrusted to the Public Investment Bank ( BPI). Born at the initiative of Francois Hollande in 2013, BPI has become a leader in start-up funding in France. His response capacity has increased fivefold since its inception and it comes in different forms in the innovation support grants, seed loans and guarantee bank loans as well as direct investments in equity funds and through partners (the “fund of funds”), etc. But the sustainability of the public investment and the ability of the state to make them grow to boost private venture capital “can always be challenged when fiscal pressure is strong,” said a close case. Hence the idea to “go further” as stated Emmanuel Macron, barely elected at the show of new technologies Vivatech in June, giving more “visibility” to risk financing. Powered by dividends or sale of minority interests of the state, the future funding should focus on three priority areas, according to the President, “Accompany industrial reindustrialise transitions and territories already affected by de-industrialization,” “leverage the dynamics of future industry “and” develop innovative solutions to address the key challenges of energy conversion, environmental, digital and demographics in our society. ” Vast program.
“This new mechanism is a way to” sanctuaries “these public resources, it is not to reinvent the wheel or put everything on disruptive innovation, says a familiar of such fixtures. In a country that has no pension funds, one can thus generate several hundred million euros per year to continue funding autonomously innovation and to project far into the future. “The only certainty at this day if Bercy was instructed to consider the future team of the fund modeled on the operation of major universities or imperial foundations is that the Elysee would reserve the scoop to announce it.
“The initiative is beneficial,” Judge entrepreneur and “digital champions” (digital promoter) of France to the European Commission, Gilles Babinet. “Brought per capita spending of France in venture capital remains far behind that of the United States, Britain and even Israel and France must step up if it wants to join the leaders of the great startup nations, he said. It remains to see how the large private funds, often skeptical vis-à-vis the state interventionism, see the operation and especially how this structure will be managed. Innovation does not only depend on the amounts invested in them but also the quality of its governance. ”
Is the state a good deal?
In the short term, yes. Find 10 billion in the current budget preparation would have required trade-offs that would have quickly turned sour. However, one question remains: is the public power finance investments in innovation? “The answer is no. Interest rates are historically low and a huge amount of cash available. Those seeking funding could easily find from private investors, “said the economist from the University of Paris I Bruno Tinel.
In the long term, the more the state reduced its stake in listed companies, the more he deprives potential dividends since its scope is reduced. But in 2015, Bercy has collected 3.9 billion euros in corporate profits which he is a shareholder. And companies that potentially are on the government’s list for the sale of assets – Aéroports de Paris, Orange or Airbus – now have good results and are therefore likely to generate handsome profits.
In 2013, the Competition Authority issued a particularly harsh opinion on the review of the privatization of highways, decided in 2006 by the government of Dominique de Villepin. Between 2006 and 2013, the French groups BTP who bought the motorway companies have already cashed 14.9 billion in dividends for a purchase price of $ 14.8 billion. Now concession contracts run until 2032 when the total amount of dividends could reach some 30 billion euros, twice the amount collected by the State at the time of privatization …
Finally, sales of assets to the state, like any investor, always look like a gamble. The timing of the sale of shares can change dramatically while the amount collected. “Look at the way Air France, today it is 13 euros while he was crawling at 4 euros in February. If the state had sold 10% stake at that moment, he would have fired three times less than today, “analyzes a former head of the airline. Chance or coincidence, the Court of Auditors, in a January report on the state shareholder, estimated that the state could adjust its interests and recover 10 billion euros. Will Emmanuel Macron be inspired by it?
Does the company a good deal when the state withdraws?
The state, in some cases, turns out the most detestable shareholder. His strategy will vary according to political alternation. He also often shown as pointed in January the Court of Auditors, it is not always pursuing long-term interests. It also regularly uses its influence, even when it is not a major rate for the appointment of officers. Or sometimes the criteria are more about the political closeness of managerial competence.
From this perspective, companies have a vested interest in shareholders’ equity exclusively focused on running the business. In addition, the state sometimes suffers from acute schizophrenia: in transport, energy, and broadcasting, it is both a shareholder conscious of his economic interests and control. How, in these conditions, decide with confidence weight of the competition in the rail or air transport or regulate tariffs for electricity or gas?