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France fiscal and budget policy: The only thing really new in 2012 was the President

2012 has been an election year: President Sarkozy left office last May and President Hollande took over. As explained in our previous report, from a fiscal and budgetary standpoint, the programs of the two candidates were rather similar: to bring deficit down essentially through tax increases. As further detailed below, the new President added a layer of new taxes and did not significantly reduce public spending nor introduced structural reforms. Public expenditures have actually increased by 2.9%. The results were as expected: a deficit above the target, zero growth and a gloomy prospect for 2013.

The Greek governments had followed expansionary fiscal policies for many years. The government spending remained at high levels, chronic budget deficits continued, tax collection weakened, and public debt exceeded the size of the economy. The global economic crisis that started to take hold in 2008 exposed the structural weaknesses of the Greek economy. After the eruption of the debt crisis, Greece has embarked on an adjustment program, aimed at tackling the fiscal imbalances. As a result of this effort, Greece has experienced the largest fiscal consolidation among all countries of the Euro area. Given the state of the real economy, the fiscal consolidation, required to restore sustainable public finances, should rely on curtailing public expenditures and strengthening the tax collection, instead of further increasing taxes.

There seems to be no respite to Italy economic and political torments. The year 2012 witnessed a deepening of the downturn of the economy. The Italian GDP declined by a huge 2.4%, brought mainly by a deep fall in the domestic demand. Increased taxes dented heavily household’s incomes, while gloomy domestic and international perspectives induced firms to postpone investment plans and families to increase precautionary saving. Public expenditure was not really cut but mainly postponed, particularly with reference to payments due by all levels of government to their providing firms, particularly in the health and construction sectors. Only exports had an appreciable resumption, showing the resilience of the Italian industrial sector.

2012 saw the stabilisaon of the economic situaon in the Republic of Ireland. Irish GDP retuned to growth with real GDP rising by 0.9 percent and real GNP rising by an unexpected 3.9 percent. The Budget for 2013 comes in the aftermath of three years participation in a bailout and stability adjustment programme implemented by the Troika (European Central Bank, European Commission and the International Monetary Fund). Contingent in this programme saw dramatic tax increases and spending cuts amounting to over €15bn or 9 percent of GDP. The adjustment measures were front loaded however, resulting in the majority of the measures being implemented during the ?rst two years of the programme, between 2011 and 2012. Thus, the Irish Budget for 2013 saw markedly fewer changes in comparison to the previous two years. VAT, income and corporate tax remain broadly untouched. Excise duties saw the bulk of tax increases, especially on alcohol, cigarettes, and petrol. The real story of the 2013 budget was the re- introduction of a property tax into the Republic, which has not been seen since 1977.

Unjusti?ed outside pressures A line must be drawn between, on one hand, what has happened and continues to happen in the country itself due to its own will and the decisions of its government and parliament and, on the other hand, what will shortly happen in the country because of decisions made by foreign governments.

The main objectives for the Norwegian Government’s tax and ?scal policies are, according to the Ministry of Finance, “… to secure public revenue, to help bring about a fair distribution of wealth, promote employment throughout the country and to improve the ef?ciency of the economy”.

The Government continues to propose rules aimed at further strengthening the tax system’s contribution to a “fair income distribution and to a better environment” (“green” taxes).

In November 2011, for the ?rst time in the post-socialist era in Poland, the incumbent government was re-elected for the second turn in the of?ce. The coalition of the Civic Platform (Platforma Obywatelska) and Polish People’s Party (Polskie Stronnictwo Ludowe) maintained suf?cient electoral support and, hence, received mandate to continue with the political legacy commenced in the late 2007. This was despite the fact that in many countries the incumbents were treated as scapegoats for triggering economic crisis (Greece, Italy – Silvio Berlusconi’s government) or pursuing austerity measures (France, Italy – Mario Monti’s government). Similar political turmoil did not occur in Poland since, contrary to the other EU countries, it did not experience recession in years 2009- 2011.

In any undergraduate course the value of legal certainty is taught. Fiscal policy, of all policies, should be following the principle more strictly, as it is one of the basic elements for any investment decision – and investment is the basis for economic growth and job creation. But that has not been the rule in Portugal, and in fact this report would be rather different if it was written six or even three months ago. For that reason, this year’s report will focus on the most important issues of the year, without giving fully detailed account date by date, which would be tiresome and useless for the reader.

Political instability and its corresponding ?scal uncertainty characterized the 2012 election year (local in June, legislative in December). A cabinet resigned, another was dismissed by the Parliament after few months, a new cabinet took over and was replaced after the legislative elections, but it kept the same Prime- Minister. A referendum for the resignation of the President had highly controversial results (87% in favor, but with no consequences because of insuf?cient participation). The Constitutional Court took almost two months to decide the referendum’s (lack of) effect. Meanwhile, the incumbent president was suspended and replaced by an interim president, who actually was his main opponent and among the initiators of the referendum.

The government is embarking upon a programme of fiscal consolidation, though delivering the reduction in the government’s deficit has not been as successful as it hoped. The fiscal consolidation was largely achieved through tax increases in the early years. Government spending remains very high as a proportion of national income. At the same time, with very little room for manoeuvre given the decision not to cut government spending faster, the government is trying to cut some tax rates. In particular, the level of earnings at which individuals start to pay tax has risen and the corporation tax rate is falling.
The tax system in the UK is very complex and, especially when combined with the impact of the benefits system, some very unfortunate results are achieved when it comes to work incentives and incentives for saving and family formation.