IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
Diesel cars should eventually disappear in France. According to the French Court of Auditors (Cour des Comptes) the fact that gas oil is less expensive than regular unleaded gas causes a loss of 7 billion euros for the Government. Things must change. Yet, it is not that easy: 60% of the French cars are diesel cars and 80% of gas consumption is gas oil.
The debate within the French Government is about whether increasing gas oil tax so that it is sold at the same price than unleaded gas or setting up a subsidy as the car scrapping incentive. If no decision is to be taken soon, Arnaud Montebourg, minister of industry, has already spoken up: “We are opposed to the car scrapping incentive because it was a drug that wretched our auto industry. It made too much damage.” Do not be fooled: Arnaud Montebourg did not criticize the Government intervention and subsidies. His critics are not economic, but patriotic: “the foreign manufacturer’s orders books were filled because of the car scrapping incentive”, emphasized Montebourg.
As a consequence, Arnaud Montebourg wishes to implement a tax measure that would benefit to the French auto industry only, regardless of competition, prices and consumers’ free-choice. “We wish”, explained Montebourg, “to find a way that would not hurt the diesel cars industry, since hurting it would hurt our industry, hurt our jobs, hurt our ‘Made in France’.” Obviously Montebourg’s logic is against free market. According to him, the next tax measure should be a “Patriotic Tax Incentive” that would force French consumers to purchase a French car, not a German, American, Italian, Japanese or Korean car. No competition, no comparison: that would be the perfect Socialist market!
Nevertheless, it would be extremely hard to implement Montebourg’s “Patriotic Tax Incentive”. First because consumers’ organizations would stand up against it since it would damage free-choice. Second, such economic discrimination will not be accepted inside the European Union at least among European car manufacturers. But the mere fact that a minister was able to speak up in favor of such economic protectionism shows how dreadful economic ideas are within the French Government.
One good idea that was not heard: instead of increasing the gas oil tax, let’s decrease the unleaded gas tax so that its price goes down or under gas oil’s. Doing so would be the best incentive ever: consumers would logically buy more unleaded gas cars than diesel’s, and the diesel cars’ market would die down for the best since gas oil pollution is dangerous. It would not cost a penny to the Government and even save money to consumers. But consumers saving money means less Government revenues, and that is out of the question for now… maybe because it is not “patriotic” enough.