Gaspard Koenig is a French liberal author and politician. He is currently working in London for the EBRD (European Bank for Reconstruction and Development). He recently ran a liberal campaign in London in a Parliamentary election for French living abroad. You can follow him on Twitter @gaspard2012.
The French press and main opposition parties (from the far-left to the right) are heavily critical of the Government for the recent 2013 budget, claiming austerity measures have been imposed through the back door. They are wrong to think so. The Government is publicly announcing austerity, especially at the attention of the country’s creditors (‘a fighting budget’, according to the Prime Minister), while in fact falling short of taking any serious steps towards much-needed reforms. The ‘fighting budget’ rather resembles a Danaids’ Jar, where more tax revenues will haplessly fill the holes of more public spending.
According to the Government’s own calculation, the tax burden will increase to 46.3% of French GDP next year, dangerously approaching the point where the State will confiscate half of the country’s output. The planned extra €20 bn of taxes are worryingly concentrated on wealth creators, to make sure that nobody will get richer in this era of ‘social justice’. Those who want to work overtime (i.e. more than the sacrosanct 35-hour week) will cost much more to their employer in social charges. Those who are starting their own activity under the advantageous ‘self-employed scheme’ (more than 1 million people) will now be aligned on the standard joy-killer regime. Those who employ domestic staff will have to pay full-fledged social charges. Worse, successful entrepreneurs and investors who make money in selling their company will see their maximum Capital Gains tax rate double from 32.5% to 60% - a quasi-nationalisation of intelligence, and the biggest possible disincentive for those aspiring to launch or assist a start-up. Entrepreneurs and business people who dare to succeed in spite of all these pitfalls and end up earning more than €1 million a year will, for their sins, be taxed at a record 75% rate on their personal income.
At the bottom of the jar, the holes in public spending are still a long way from being filled. Cuts in Government expenditures will amount to a modest €10 bn, less than 1% of total spending. The public sector will be quickly compensated by new lavish hiring schemes, which will increase the number of civil servants (+ 6000 in 2013) for the first time in 10 years ! As a result, public spending will only ‘stabilize’ at over 56% of GDP, one of the highest proportions in OECD countries – and a clearly unsustainable one.
To keep the jar afloat, the French State is borrowing €22 million and paying €6 million of interest every hour. Public debt is culminating at more than 90% of GDP and doesn’t show any sign of coming down – even in official forecasts. Is it worth recalling that, in the years before the French Revolution, the debt was estimated to 80% of GDP?
It seems that the ‘French dream’ that Hollande was marketing during his campaign in the end amounts to giving everybody a position in a public administration while discouraging any true entrepreneurial spirit; they being always at risk of creating social inequality through business success. The French dream is, like often in real dreams, that everything remains paralysed for ever. And financial markets, charging historically low interest rates (probably not for long), are generously providing the sleeping pill.
The Government should hear the last wake-up call to get its finances in order, put the State on a severe diet and carry out the necessary structural reforms (including in priority the much-needed liberalization of the job market). Alas, by an extraordinary schizophrenia, the French Government, made up exclusively of senior civil servants and party apparatchiks, keeps promoting sound economic policies in EU bailed-out countries while doing exactly the contrary at home. It is steering the country towards an unavoidable crash.
There is a glimmer of hope though in this dire political context. Last Friday, a handful of entrepreneurs set up a group ironically baptised ‘The Pigeons’ (a reference to those who are going to be plucked). On Monday, it had become a social phenomenon, with 10,000 'likes' on its FaceBook page and widespread coverage in the mainstream media. For the first time in French history, entrepreneurs are planning to stage a protest in Paris next Sunday in front of the Parliament. The capitalist Revolution has started.