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Analysis: French tax crisis in 2013

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Taxation in France has got out of hand: but how did France get into this situation, and can the politicians actually take the unpopular measures needed to get the economy back on the rails again ?


November 2013.

For decades, French governments have been slowly increasing taxes and introducing new taxes – and until 2013, the tax burden was generally shrugged off by French citizens as the inevitable cost of France's high quality of public services - including virtually free health care for all, relatively good benefits and allowances, and virtually free universities.
   But it is clear now that  taxation in France has  reached a level at which public opinion across the board is saying "enough is enough". As successive governments fail to revive the national economy, discontent has reached record levels, and  high taxation is seen by both business and French taxpayers as a major cause of the problem. With public expenditure currently standing at 56 % of GDP, compared to an OECD average of 45 %, and health and social security spending representing 32 % of GDP, as against an OECD average of 22 %, it is clear that the taxation levels required to fund this spending are damaging French business, and raising the cost of living for everyone.

   So how did France reach this parlous state?
    The answers are historic and systemic - and in part spring from the nature of French democracy. For the last half century and increasingly so as the years went by - France has been on a virtually permanent pre-electoral footing. In theory that is not a problem: the problem for France lies in the historic tradition of cumul des mandats, or the fact that most French parliamentarians - deputies or senators - are also local councillors, local mayors, county councillors, regional councillors or hold other  elected positions at various levels of local government. Holding several elected positions at the same time, many if not most parliamentarians have spent a large part of their political life making promises to the voters on whom they depend for reelection to local, regional or national positions.
    The practice of cumul des mandats is overwhelmingly disapproved of by French voters, and has been for years. Successive French presidents have pledged to severely restrict the practice, and indeed a few timid steps have been taken. It is now no longer possible to be both a member of the French government, and mayor of a large city; but many government ministers have been at one time mayor of a French city.

   Prime minister Ayrault
   A classic example is France's current Prime Minister, Jean-Marc Ayrault. He started out as an elected county councillor (conseiller général) in the Loire Atlantique department, then got elected as mayor of a small town Saint Herblin; he was then chosen by the Socialist party as their candidate for the job of Mayor of Nantes - France's eighth largest city. Ayrault was mayor of Nantes from 1989 to 2012, and for most of that time was simultaneously  elected to the National Assembly as député for the city.
   The system works in reverse too. Députés who lose their seats in the National Assembly frequently retire to take up other elected positions as mayors, departmental or regional councillors, or other positions in the plethorically laminated system of local government in France.
   French voters disapprove of the system, but no government has been able to legislate it out of existence, as to do so deputés would need to saw through the branch on which most of them are seated.

   As regards public spending - seen as the big cause of France's current ills - the system has had pernicious results. National, regional and local governments have all shown great largesse with public money; in doing so they have given France some great public services, with elected officials taking credit for the good services, and blaming the others (another tier of local government or national government, or the previous administration – whichever happens or happened to be run by their political opponents) for rising taxes and any other  electorally damaging development.
  Up to now, the system has kept working, though under increasing strain. The French are naturally attached to their good and generous health-care system, their good and affordable trains, their good pensions - specially for public sector employees. Until the early years of the 21st century, the question of who paid for them was not often mentioned. Governments could always raise extra  revenue by introducing new taxes or increasing existing taxes in small doses, or by borrowing money; and that is what they did.
   Short-term considerations of electoral popularity ensured that no government would take any seriously unpopular measures designed to cap or roll back public spending. Successive governments made half-hearted attempts to bring in unpopular changes, but watered them down or abandoned them as soon as lorry-drivers began blockading roads, farmers dumped manure outside public buildings, or students closed down a few universities. The subliminal message sent out to all vested interest groups in France was : protest in the streets and make a noise on television, and the unpopular measures that might affect you will be withdrawn; and someone else will pick up the tab.

Pension reforms

   In 2010, President Sarkozy braved public opinion by getting his government to push a first serious reform of France's generous retirement and pensions system through parliament; but the text finally voted into law, while it pushed back the official minimum retirement age from 60 to 62, was seriously watered down compared to the original proposal. The bill was bitterly contested by the Socialist opposition in the French parliament, happy to benefit from the government's general unpopularity. Two years later, Sarkozy was voted out of office; and three years later, socialist Prime Minister Ayrault, introduced a new pensions bill in parliament, further reducing entitlements. A classic example of political double-speak, the Ayrault bill did not  increase the minimum retirement age beyond 62, but made it virtually impossible for anyone retiring at that age to qualify for a full pension.

    Yet the task of reforming France's generous retirement and pensions system is perhaps the one task that has most served to make French voters aware of their country's current economic difficulties. The subject affects everyone in France, young and old, public sector and private sector workers, employers and employees. Naturally, everyone wants to benefit from the system; but no-one wants to have to contribute even more than they already do in social security charges.
    French employees look with increasing alarm at the gaping difference on their pay slips, between their gross pay and what they actually receive, once all the multiple social security charges have been deducted. And employers are exasperated by the high levels of employer national insurance contributions that they have to pay in addition to what they pay  their employees; or else they get headaches trying to find their way round the maze of circumstantial tax-breaks that have been set up to offset the high levels of employer contributions for certain categories of employee.
   Additionally, the current high level of both employer and employee national insurance contributions in France is seriously damaging the competitiveness of French firms, and the take-home pay of French employees. It is also a major factor contributing to France's systemic high unemployment rate and the perceived general fall in living standards being endured by French households.

   In short, by their largesse and in many cases populist fiscal policies, successive French governments have painted themselves into a difficult corner. For the foreseeable future, French governments will face the irreconcilable opposing forces of reducing public spending, bringing down the cost of social security spending, reducing the national debt, reducing the public sector borrowing requirement, and pleasing voters. Paradoxically, while president Hollande's current unpopularity is largely due to his dithering and his inability to please anyone other than his own die-hard suppporters, Prime Minister Ayrault's unpopularity is largely due to his willingness to assume responsibility for unpopular measures, and insist on seeing them through. In an interview to French radio on 14th November, Ayrault pledged to see unpopular measures through parliament, and insisted that there would be no turning back.
   The problem is that to get the French economy really back on the rails again, many more even harder fiscal decisions will need to be made. And with the thought of relection to their various functions constantly at the back of their minds, it is not certain that French parliamentarians will bite the bit. Ayrault is already facing contestation in his own ranks.
 

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