THERE IS no doubt that the election of President François Hollande has been crucial in successfully challenging conventional EU wisdom, shifting the focus of its leaders’ response to the crisis to a more growth-oriented strategy. The harsh refrain that “there is no alternative to austerity” has given way to a welcome general consensus that austerity measures alone will kill off growth and to a somewhat more understanding approach to the plight of the heavily indebted.
Now Mr Hollande is also challenging that other piece of received wisdom, that fiscal responsibility must necessarily, predominantly involve spending cuts rather than tax increases. His heavily indebted government, faced with severe deficit reduction targets, is attempting to balance the books this year with some €7.2 billion in extra taxes, mainly targeting the wealthiest households and biggest companies. “If there are sacrifices to be made, and there will be,” Hollande told voters during the election campaign, “then it will be for the wealthiest to make them.”
The new measures, part of an amended 2012 budget, include lowering France’s wealth tax threshold and adding a once-off levy on those with net wealth of more than €1.3 million; a tightening of inheritance tax; higher taxes on banks, petrol companies and dividends; increased employer social contributions; and a doubling of the financial transactions tax to 0.2 per cent. In the autumn he will launch his programme of far-reaching tax reforms, including a 75 per cent tax on income above €1 million. He has also slapped new charges on absentee holiday homeowners – there are 200,000 from the UK alone – much to the distress of the British authorities.
That does not mean expenditure cuts are off the agenda. Far from it. To meet a promised 3 per cent deficit target in 2013, an additional €33 billion in tax revenue and spending cuts will have to be found next year, a state auditors’ report warned on Monday. Budget minister Jerome Cahuzac insists that, while the initial focus this year was on tax rises for the wealthy, the government will progressively rein in its expenditure from 2013 onwards. And, having promised to freeze central government spending without cutting staffing levels, Hollande will now face the difficult task of convincing France’s powerful public sector unions to accept a cap on pay rises and promotions – all rather Croke Park.
France faces difficult times. There is no pain-free road to fiscal responsibility and balanced budgets. But there are choices, and France has chosen its different path.