The French Experiment
We have a new experiment.
Monsieur François Hollande est Le Président de la République.
The most immediate effect is that we all have to find the cédille key on our computers for the first time since François Mitterrand, and that’s before blogging began.
Perhaps this time we won’t need the circonflexe if he has fewer maîtresses (with or without tître) than previous incumbents.
The new President has marketed himself to the Electorate as a Socialist, and his promises to obtain votes include – amongst other things (excerpts from the FT):
not to ratify the EU’s new fiscal discipline treaty unless new growth-promoting measures are added
higher taxes on business and top earners
subsidies for companies taking on younger and older workers
partial reversal of the rise in the retirement age to 62
a balanced budget by 2017
To me that looks like a very square circle indeed, but – not being a Socialist Président of France – what do I know?
The 2011 French Government Budget Deficit was 5.2% of GDP, or about 90bn Euro. That was better than the expected 5.7% after 10s of billions of Euro saved through one-off savings of costs and takings of benefits.
The Court of Auditors (France’s independent organisation to report on Government finances) say that even without the rolling back proposed by Monsieur Hollande, Monsieur Sarkozy had put only a fraction of the required measures in place:
France’s Court of Auditors – a quasi-judicial body charged with reviewing public finances – said in a report that the government last year had taken only one tenth of the measures required to keep its promise of balancing the public finances by 2016 and that much tougher steps would be needed.
“At this rate it would take 10 years to get to budgetary equilibrium,” said Didier Migaud, first president of the Court of Auditors. “The biggest steps will remain to be taken in 2013 and 2014.”
The Court of Auditors estimated that France had reduced its structural deficit – excluding cyclical economic effects – to 4.5 per cent of GDP in 2011, down by just 0.5 of a percentage point from the previous year.
And reality will urge the question as to who is going to pay for it all, and how, and where the money will come from.
The question for Monsieur Hollande is quite simple: does he know?
Président Holland is not in a position to borrow, nor to print, much money because of the need to preserve the Country’s international credit rating, and because he does not control the French currency.
A 75% top rate of tax for everyone earning more than a million Euros a year is innovative,
The Socialist favourite in France’s presidential election, Francois Hollande, has said top earners should pay 75% of their income in tax.
“Above 1m euros [£847,000; $1.3m], the tax rate should be 75% because it’s not possible to have that level of income,” he said.
and it’s a good Aunt Sally.
The problem for this proposal is that the number of people in France at that income level is only a few thousand. When Mr Sarkozy introduced an income tax supplement for those earning over 250,000 Euros it only caught 25,000 people:
Those with an annual income (including income from capital) of between €250,000 and €500,000 will pay an tax of 3% on income between this range, while those with an income above €500,000 will pay at the rate of 4% on any income above the threshold.
The tax is imposed on net income, after determination of the tax liability under the standard scale rates. As a result, its impact will be limited, estimated to affect only around 25,000 taxpayers and costing €400m.
This tax is stated by the government to be ‘temporary’, until there is a balanced budget, so it is likely to be around for quite a while!
Even if – on the back of an envelope – Monsieur Hollande takes an extra 0.5 million Euros from 5,000 people every year, which assumes a high mean average income of 2.5 million Euro for those people, it is only around 2% of the deficit.
It will take away investment money, and London has a very good French school – the Lycée Français Charles de Gaulle – in Kensington, with 3000 pupils.
London also has a top income tax rate of 45% (ignoring National Insurance), almost the same as they are currently being charged by Sarkozy, which is the 41% top tax rate plus the 4% supplement I mentioned above.
And then there are Switzerland and Luxemburg just over the border.
Hollande could also try to put into practice his political rhetoric about tax concessions to big business:
“The government was caught off guard by the slowdown in growth,” Mr. Hollande said in an interview published in the left-leaning daily Libération, before details of the new austerity plan were formally announced. “Let’s not forget that since the beginning of Nicolas Sarkozy’s term, 75 billion euros in tax revenues were lost due to tax breaks given to large firms and wealthy households. It would have been legitimate to recoup some of these first, given that they have yielded no tangible benefit to the real economy.”
75 billion Euros sounds like a lot of cash.
Unfortunately over a 7 5 year French-Presidential term, that is likely to be well under 20 25% of the deficit, before the cost of the proposed extra expenditure such as partially lowering the retirement age again.
And if Mr H wants to balance the budget, he will need at least 700 500 billion Euros, not 75, on top of stopping the underlying trend which is going resolutely in the wrong direction.
Those are the same problems which our own left-wing economists on the left run into when they meet reality, and ignored by our noisy teenage wibblers with megaphones, inside their bubble.
So colour me sceptical, and I’ll be interested to see if it works.
But boy I’m pleased that the French Experiment is happening in France.
- Foreign Legion
-
1
May 7, 2012 at 10:25 -
Sounds to me like he’s been talking to Gordon Brown
-
2
May 9, 2012 at 14:53 -
Well, we no longer have a MERKOZY (MERkel-sarKOZY)
We have a MERDE (MERkel-hollanDE)
At least that’s something about which ye may titter..
-
-
3
May 7, 2012 at 11:10 -
Son of Zapatero.
-
4
May 7, 2012 at 11:21 -
I know it sounds bad but I too am pleased that Hollande won in France. I also hope that he implements as many socialist principles as possible. And then when (not if) it all falls down like a pack of cards then we will have real evidence to show that high taxes doesn’t work.
I just hope that the people of France, including our Landlady, do not suffer too much during this experiment.
-
5
May 7, 2012 at 11:52 -
You beat me to it!
-
6
May 8, 2012 at 08:33 -
http://www.creditwritedowns.com/2011/01/reasoning-behind-ninety-percent-marginal-taxes.html
Hey Jon, what do you think of this?
-
-
7
May 7, 2012 at 12:01 -
In practice, M. Hollande will only ever be able to enact those things which his superiors endorse – should he feel tempted to stray, the ‘offer’ of help from a ‘friendly’ Gauleiter will shortly follow.
Bon chance, mes amis.
-
8
May 7, 2012 at 12:22 -
Germany are gonna walk.
-
9
May 7, 2012 at 13:02 -
Germany are going to walk where? Out of the Euro or into France?
-
10
May 7, 2012 at 13:24 -
The Germans don’t walk into France.
They drive tanks.
-
11
May 7, 2012 at 13:26 -
Good point SAOT. Reminds me of the old joke about why the French have trees either side of their roads, it’s so the Germans can march in the shade.
Back on topic, I think that there are going to be a lot of aspirational French entrepeneurs coming to the UK to escape a possibly collapsing French economy. Lets hope that the problems do not affect our esteemed host Anna Raccoon.
-
12
May 7, 2012 at 21:18 -
Germans. They’ve kinda lost the knack with tanks in the last 50 years. Perhaps, Audis.
-
-
-
-
13
May 7, 2012 at 13:26 -
I potentially see France falling out of the Euro if he pushes it all through.
-
16
May 7, 2012 at 13:51 -
I’m going to be picky Matt and point out that the French reduced the length of a presidential term to five years ahead of Chirac’s 2nd term.
-
17
May 7, 2012 at 14:38
-
-
18
May 7, 2012 at 18:36 -
Let’s welcome with open arms all the rich French people who want to move here.Instead of the normal dross that arrive.
-
21
May 7, 2012 at 18:54 -
Regardless of the ridiculously disfunctional eurozone, as a socialist M.Hollande is well aware of the rules. Same as here, good headlines from tax hikes for the rich, (till the pips squeak I seem to recall) but very little yield, not because of avoidance, but because of arithmetic, as Mr Wardman has shown.
So its the usual, same as here, tax the masses on everything they earn and everything they spend- that’s what they’re there for after all. -
22
May 7, 2012 at 20:06 -
Presidents don’t get to control the economy, sure they have influence but the bond traders (and buyers) get the last say.
Hollande can implement as many hare-brained schemes as he sees fit, but without adequate tax revenue he is reduced to funding them by borrowing (issuing bonds).
France dropped a notch on the rating scale earlier this year so borrowing is already more expensive, I believe they are on credit watch so expect further increases in borrowing. Some French banks already insolvent will fail. France will do what the USA and UK have done print more money and debase the currency.
Hollande is Frances equivalent of Gordoom Brown or Obambi, he will plunder retirement savings and destroy their fragile economy.
Sensible rich French families will have already safeguarded their wealth and probably always had assets secured in Switzerland, and exotic offshore locations, talk of an influx of families to London is risible.
-
23
May 7, 2012 at 20:45 -
The ECB controls money presses. He can borrow – at whatever rate anyone wants to lend – but he cannot print money.
-
24
May 7, 2012 at 21:21 -
You are correct-does not change my prediction though, ECB will print money.
-
-
25
May 7, 2012 at 21:06 -
Why is it so difficult to work out that if you don’t want your destiny controlled by bond traders, don’t get yourself in hock to them in the first place.
This debt crisis, and the response of too many left-leaning thinkers and commentators, is like the person that runs up unsustainable debts on their credit cards, and then blames the banks for not telling them to stop. The amount of debt you incur is your responsibility, not the bank’s. The amount of sovereign debt a country incurs is their government’s problem, not the markets’.
-
26
May 7, 2012 at 21:35 -
Agreed , with a small but significant amendment.
The amount of sovereign debt a country incurs is their taxpayers (existing and future) problem
-
27
May 7, 2012 at 22:41 -
A very fair point.
However, it’s also fair to say that most governments didn’t seek a mandate from their electorate to run up sovereign debt, they just did so of their own accord, and called it ‘investment in public services’. Tantamount to an outright lie, that one.
-
-
-
-
28
May 7, 2012 at 20:10 -
Forgot-he will increase the black economy.
Landlady can I run a tab, I will clean your windows and wash your car in repayment?
-
29
May 7, 2012 at 20:38 -
same old same old
-
30
May 7, 2012 at 20:38 -
31
May 7, 2012 at 20:47 -
What would be interesting would be if Germany changed government. Everywhere in the EU incumbents are being kicked out. How safe is Angela?
-
32
May 7, 2012 at 20:57 -
I saw this cming a year ago and made the wise decision to NOT EARN
-
33
May 7, 2012 at 21:00 -
I got interrupted …
Well, here we go again:
I saw this coming a year ago and made the wise decision to NOT EARN any money any more, but live on my “fonds propres”. So the only thing I owe them is this ridiculous “solidarité des fortunées”, which is affordable
-
34
May 7, 2012 at 21:38 -
Well done. This is the only strategy that will potentially slow down profligate politicians.
-
-
35
May 8, 2012 at 02:23 -
Well, my Pension Euros have increased fractionally since Francois Hollande was elected. Personally I would rather do without it, but I might as well look on the bright side since there is nothing else to be done.
-
36
May 9, 2012 at 14:47 -
I hate the whole European edifice with a passion so anything that messes it up, like the Greeks possibly renaguing on their bailout package, the French falling out with the Germans is wonderful news.
Clearly, we could not go on as we were, spending money we just didn’t have and now we are all squirming and agitating because the medicine that we are taking to cure our previous spendthrift habits tastes like… well let’s not go there. Those who can least afford it are the ones who are the easiest targets for the government to extract money out of. The plebs to the rescue! Again!!
Trouble is, along with our present government’s ruthless efficiency? drive there is nothing to stimulate growth in the UK and no expectation that things will improve. The last lot got us into terrible debt and the banks did their bit to mess stuff up so now we are really ‘in it’. I do not see any likelihood of a recovery for ten years or more.
Mes amis, best get used to being… ‘ow you say… Tres pauvre.’
{ 36 comments }