Economic hazards of a moral French Budget

If only the great French playwright Molière could make a comeback from the seventeenth century, president François Hollande would meet his match in a new character who'd merge the hubristic Tartuff with an imaginaire austere statesman.

At least, that is what some City analysts seemed to conclude after reviewing France's 2013 Budget and medium term fiscal plan 2012-2017.

The Hollande government aims at achieving a structural balance in five years, yet general public spending per GDP is officially set to decline merely 2.4 percentage points. The rest of the fiscal effort will need to be shouldered by taxpayers.

And those public investment cuts, even though contained, will not exactly cheer his electorate of welfare champions. For instance, Art Media Agency says that “the cultural budget is decreasing by 4.3% or some €110m, from €2.54 billions to €2.43 billions, with heavy consequences… Forecasts are most alarming, for they announce a 7.5% global drop of the initial budget.”

Fiscal deficit expectations for 2012 point at 4.5 percent. It should fall to 3 percent next year, provided Hollande succeeds. His savings plan would be €10 billion, though, while households and businesses must fill a €20-billion gap by paying more taxes.

“The measures announced in the corrective budget for 2012 in July, which were essentially focused on revenue,” says Olivier Bizimana of Morgan Stanley, “would raise tax receipts by about €6.3 billion in 2013 as well.”

Eric Chaney, chief economist at AXA, told Reuters: “The government has understood that the increase in the public debt has got to be halted but the way that they are doing it is not the right way. It amounts to strongly increasing the tax burden on companies, their shareholders and executives, in other words those who create added value.”

The French strategy revolves around the principle of targeting the wealthiest contributors, whether individual or corporate, under the belief that it will not harm consumption levels and will protect small and medium size businesses with little room for manoeuvre.

Tax exemptions for interest on big companies' debt will be limited, early payment of corporation income tax will be toughened, and carrying forward losses will be restricted. For French families whose income surpasses €150,000 per year, the tax rate now is 45 percent, and if over €1 million, a 'special' rate of 75 percent will apply.

Will Hollande's teach its neighbours a lesson on why austerity need not be unfair? Unemployment numbers will tell. Heavier fiscal pressures on companies, most analysts fear, could simply shut their expansion down while households' consumption may recoil in an environment of European recession. The economy would then hurt.

What is apparent, unfortunately, is that Hollande shares the same stubborn loyalty to grand state structures that have been proved obsolete and terribly onerous for everyone else. That is most socially unfair.


About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.