Jean-Philippe Delsol
Tax lawyer, deputy director of IREF
The government’s goal of reducing the budgetary deficit to 3 per cent of GDP is commendable, even though such a deficit will inevitably increase the French public debt as growth will be low or even close to zero. However, the tools applied are both unjust and inefficient.
The French Cour des Comptes (National Audit Office) published this Monday a new report on public finances. Without surprise, the ambition to limit the budget deficit to 4.4% of GDP in 2012 is confirmed to be unrealistic. An extra six to ten billion euro would be necessary in order to meet this commitment, and this is without taking into account the new promises and expenses scheduled since François Hollande’s election. Meanwhile, the new financial Minister Pierre Moscovici, keeps claiming his profound hostility to austerity and budget cuts.
This paper is excerpted from the forthcoming “IREF’s Yearbook on Taxation” 2012
In view of the great fragility of French public finances, all the candidates to the April 2012 Presidential elections have felt the necessity to explain their strategy to put the country back on track, if elected. As a result, fiscal policy has attracted more public attention than rarely ever in the past. Although propositions seem to vary substantially from one candidate to the other, standing back they pretty much come down to the same two-tier plan: (1) cut some taxes here and raise some there so that the net balance is zero and (2) cut some public expenses here and increase some there so that net balance is zero or slightly positive (small reduction in public deficit). In short, no substantial reform, neither in the field of taxation or in the field of public expenditures, is to be expected. This, some say, is justified by the desire to save the country from recession (GDP is expected to stagnate during the first quarter of 2012 and to grow by 0.2% in the second quarter). Keynesianism is still popular there: A strategy that displays a great deal of stubbornness if we recall that France has already one of the highest levels of public expenditures in the world.
On February 16th, 2012 the French Parliament has adopted its version of the so-called Tobin tax; a version that, some says, is partially based on the stamp tax levied in the City. The tax, to be effective August 1st, will be levied on all transactions involving equities from a French company if the capital of that company exceeds €1 billion and regardless of the place where the transaction is carried out. Hence, the tax concerns some 100 French companies publicly traded. Its rate is fixed at 0,1%.
The first of February marks another harsh date for French real estate owners. From this day there are new taxation rules on capital gains realized with the sale of a second home or a land. While previously the capital gains were exonerated if the real estate is owned since more than 15 years, now this delay has been increased to 30 years. The tax on capital gains thus reaches 19% if the property is sold during the five first years after acquisition and the rate is progressively decreasing the following 25 years. One has to add to those taxes the social contributions.
France is famous for its wine, cheese and…unions. It is well established now that any reform considered by any government, left or right, has to be approved by unions (or, at least, not strongly opposed) in order to have a chance to be passed. Strange situation in a country where less than 8% of all employees have a union membership card–the lowest rate in the EU. Despite the poor legitimacy that such a low membership rate implies, unions are getting important grants and allowances from the state as well as from businesses.
For the French government, it is more than ever urgent to convince everyone that the State deficit is moving in the right direction and the public debt is sustainable. In the context of an uncertain future for the French credit rating triple A note, the present debate on the budget of the State for the coming year and the austerity measures it includes became a really hot issue. The initial project of budget for 2012 has been already adopted by the Financial Commission at the French National Assembly and is now being discussed by the deputies.
This article appeared in The Wall Street Journal
In next year’s French presidential elections, it seems increasingly likely that voters will be asked to choose between two types of statism: statism of the left and statism of the right. Over the weekend François Hollande won the final round of the Socialist Party primaries, handily besting party leader Martine Aubry, and is now set to face off against France’s ostensibly center-right president, Nicolas Sarkozy.
The game of representative democracy is such that we constantly have to choose, not between policies, but between programs that are best seen as baskets of policies to be implemented if the candidate supporting that program is elected. The basket that the French President, Nicolas Sarkozy, “sold” to his electors in 2007 was, as always, made of all kinds of policies. But there was one on which he particularly insisted on during the elections and that, in my opinion, brought him the support from many voters: the promise that, if he was elected, individuals who will work more will earn more. “Travailler plus pour gagner plus”– with those words, he was promoting a move away from a society in which the extra money you make is redistributed away from you. At least that’s the way many people understood it.
In 2009, 31.3% of the French GDP has been spent on welfare payments. Those include spending by the State-managed health care system, unemployment benefits and social benefits. The government agency in charge of those payments has tripled its deficits during the past 3 years reaching a record 28 billion € in 2010. The annual amount of welfare payments reached 597,5 billion € in 2009, which is largely superior to the whole amount of the Greek debt (€328 billion).
