French elections: missing the big picture?

By François Cocquemas

Ingram Pinn illustration: Hollande (c) FT

On Sunday May 6th, 2012, French voters will choose their president for the coming five years. After a first round with 10 candidates covering a wide and sometimes colourful political spectrum, the landscape may now appear a bit dreary. Both the left-wing favourite, François Hollande, and the right-wing incumbent, Nicolas Sarkozy, have promised higher taxes and controlled public spending. Both candidates aim to bring the public deficit back to equilibrium, disagreeing only on the timeframe. Both mostly refrained from costly, last-minute promises to rally the undecided. According to the pro-business think-tank Institut de l’entreprise, both programmes are underfunded [in French] by a similar amount, €11bn to €12bn.

European salvation

Their difference on economic matters seems largely limited to their plans for Europe: Mr Hollande wants to renegotiate the European Fiscal Stability Treaty, so it also promotes growth and not just government austerity, which is enough to make him “rather dangerous” in the eyes of the Economist. As the Financial Times’ Chief political commentator Philip Stephens rightly puts it, there’s no reason to fret:

The influential Economist has declared on its front cover that Mr Hollande is “dangerous” – though, being British, it did add a qualifying “rather” to this disobliging epithet. The would-be president, the magazine observed, “genuinely (my italics) believes in the need to create a fairer society”. Well, what could be more dangerous than that?

While this might well be the case, the social justice rhetorics have been subdued in Mr Hollande’s campaign. Mr Sarkozy, on his side, has argued about the impossibility to renegotiate a signed treaty – shortly before threatening to suspend the Schengen agreement if nothing was done to fix “leaky Europe”. Mr Hollande, on the other hand, claims that other leaders in Europe are looking forward to his election, and that lines are already moving after ECB president Mario Draghi called for a growth compact alongside the fiscal compact.

Mr Draghi, of course, is thinking of structural reforms promoting flexibility and mobility in the labour market, where Mr Hollande’s growth plans mostly entail increased investment, financed by eurobonds. It is a striking sign of the times, though, for a French socialist candidate to have renounced acting at the national level, and to turn to Europe for Keynesian spending.

Missing the big picture

Current levels of public deficit and debt are not forever sustainable: this relative consensus among mainstream parties does not make for the lack of vision of their candidates when it comes to the future of France and Europe. During the campaign, Mr Hollande’s main goal was to play it safe and not to commit major mistakes, as widespread opposition to Sarkozy was promising him an easy win. On the other hand, Mr Sarkozy, portraying himself as the experienced “insider” of European institutions, would have had a hard time explaining a sudden turnaround in his strategy for Europe.

This balance of power made for a bleak campaign where the economy has taken a back seat. Mr Sarkozy, in a last gambit, has been catering to the far-right voters, playing up the xenophobic refrains at the risk of losing part of his moderate, pro-Europe electorate. His attempt to make the vote about values is two-edged, after five years of a presidency saturated with scandals and unfulfilled promises. But, at least in part, Mr Sarkozy seems to have successfully moved the debate: François Bayrou, the centrist candidate, has declared himself in favour of Mr Hollande in spite of disagreeing with his economic proposals [in French].

While Mr Sarkozy has passed a hike in the VAT rate, to be applied in September, which would disproportionately hurt the poor, Mr Hollande has announced some symbolic measures of social justice. He raised outcry by proposing a marginal tax rate of 75% on revenues above €1m. The economic efficiency of such a measure is unclear, yet it has been much more of a flagship than other tax proposals, such as fighting tax evasion and limiting breaks on wealth tax.

The Economist calls it “punishing the rich”. Why is it so hard to call it “social justice”? Maybe because of the lack of a big picture. Examples of abuse of the current system are plentiful; but having the rich pay more is not a satisfactory goal in itself.

Solutions have been proposed. In 2011, economists Camille Landais, Thomas Piketty and Emmanuel Saez published “Pour une révolution fiscale” [in French, also available as a free PDF download] which argues the French tax system is too complex, lacks transparency, and is downright unjust. Rather than being progressive, they show the French tax system is actually regressive: the average tax rate is lower for the rich than it is for the poor. They propose an overhaul that would simplify the system and restore fairness, which can be simulated on the companion website.

Fiscal integration in Europe is still a long way off, and will only happen if eurozone countries can muster a little fiscal imagination. A reform of the French tax system, however, was well within the reach of the presidential campaign. It is regrettable that such an agenda did not make it as such to the political debate.

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