French Politics: Taxes, Racism… and Pigeons

By Antoine Cerisier

French Industry Minister Arnaud Montebourg among Arcelor Mittal workers in Florange

It has been almost six months since French voters elected François Hollande as their new President, giving his party – Parti Socialiste – the absolute majority in Parliament several weeks later. His victory came as a great relief for those critical of the rightward shift operated by the French conservatives since Nicolas Sarkozy’s election in 2007 – which I addressed in a previous contribution to this blog. However, both Mr Hollande and his quiet Prime Minister Jean-Marc Ayrault have been suffering from a sharp decrease in popularity in the last few weeks: more than half of French citizens seem to disagree with their policies. Part of the explanation lies in the current socio-economic context. Unemployment just hit the three million mark and is expected to rise in 2013; dire growth prospects may undermine the government’s efforts to reduce the deficit; and massive layoffs often make the news, including those incurred by the recent closure of Arcelor Mittal’s blast-furnace facilities in North-Eastern France.

However, the new government cannot be blamed for the ongoing economic and financial crisis, nor can it bear responsibility for the wrongdoings of their predecessors. For instance, part of the deficit inherited by François Hollande can be attributed to irresponsible policies implemented by the successive UMP governments since Jacques Chirac’s re-election in 2002 – including the infamous niche Copé for large corporations and the constant decline of the top income tax rate from 53% in 2001 to 40% in 2011. The Socialist government has already implemented some early measures to reverse this unsustainable trend, increasing inheritance and wealth taxes (impôt sur la fortune or ISF) for wealthy individuals. The latter had been slashed by Mr Sarkozy’s government in 2011 at a cost of €2 billion a year.

Bernard Arnault: victim of “taxation paranoia”

But efforts to straighten up the country’s finances have led to an absurd “taxation paranoia”. The government has been accused of “anti-rich” behaviour in the last few weeks. In a recent interview, Laurence Parisot, the head of the French employer’s union MEDEF, deplored the rise of what she calls “anti-business racism”. This powerful lobbyist believes precariousness is “part of the human condition” but inherited her family’s furnishing retail group to become one of France’s wealthiest women. Another poor fellow received considerable media attention in September: Bernard Arnault, chairman of LVMH and Christian Dior. The richest man in Europe and fourth richest person in the world asked for Belgian citizenship, allegedly for sentimental reasons. However, many suspected his decision was a reaction to François Hollande’s much discussed 75% tax on wealthy individuals – the rightwing opposition blamed the Socialist government for what they claimed was the start of a massive brain drain. In a similar fashion, a small group of French entrepreneurs opposed the planned increase in capital gains tax which they see as detrimental to entrepreneurship; in fact, it may even lead to France’s “economic death”. Although subtlety is not their strongest feature, this so-called “Pigeon” movement – a cunning marketing strategy – managed to attract more than 50,000 “fans” on Facebook in less than a week. It also enjoys considerable support from the mainstream media, with renowned journalists supporting their cause on primetime national television. Nevertheless, these libertarian pigeons feed on exaggeration and inaccuracy: as a recent article pointed out, most of their claims on the new tax rates are incorrect and a number of prominent entrepreneurs have already criticised the avian movement. The Pigeons gained support from the French right and Laurence Parisot’s MEDEF and even managed to pressurise the government – but threats of (literal) fiscal migration may be nothing more than a self-fulfilling prophecy.

The Pigeons: one for all, all for one?

Nevertheless, others have expressed legitimate concerns regarding the Socialists’ policies and the government’s popularity among leftwing voters has been declining sharply. Two issues come to mind: taxation and the EU treaty. Regarding fiscal issues, I for one did not approve François Hollande’s much discussed 75% tax on earnings surpassing 1 million euros. This is a largely symbolic measure which will only concern very few individuals and will not increase tax revenues significantly. While such symbols may have helped the PS win the last election, they are no sound basis for economic policy and constitute an easy target for the opposition – only when UMP is not too busy dealing with internal disputes or its leader’s absurd comments on “anti-white racism” and children supposedly bullied by Muslim thugs for eating pains au chocolat during Ramadan… Instead, the government should address tax evasion and the inequity of the French system by introducing more efficient and progressive taxation. As François Cocquemas pointed out in his article, the current system is far too complex and lacks transparency. A group of economists led by Thomas Piketty has been calling for a profound fiscal reform for over a year, under the title Pour une Révolution Fiscale. Their proposal would simplify the fiscal system, re-establish progressiveness and increase tax revenue by at least €10 billion a year.

Another concern is the government’s support for the EU Fiscal Treaty which, as Marc Morgan argued on this blog, is “not far from promoting authoritarian technocracy” and establishes austerity as the governing principle of European economic policy. In spite of all their campaign promises, have François Hollande and his team given up to the Merkozian ideal of European integration? It appears they have, and their resignation deteriorates the fragile relationship between the Socialists and their Green coalition partners: indeed, the latter officially rejected the Stability Pact a few weeks ago. The Greens have been accused of undermining the government’s unity but rightly opposed this punitive treaty which may prevent any form of economic recovery in the next few years. In particular, reducing the deficit to less than 3% of GDP as early as 2013 – a demand formulated by the European Commission – will only lead to a fall in demand, slower growth, more unemployment and, ultimately, more public debt in years to come.

A journalist in denial? Sophie Pedder, neo-liberal critic

In sum, the current government is generally going in the right direction but often lacks ambition and long-term vision, particularly when faced with deregulatory pressure from the European Commission, entrepreneurs or the media. Sophie Pedder, The Economist’schief correspondent in Paris, even wrote a whole book on the so-called “French denial” – overall a rather dishonest and contemptuous account of the French economy, which she wrote “in a very simple French to make it accessible to a wider audience” (just in case people are too daft to understand the message). She does mention an interesting report published by the World Economic Forum regarding the effectiveness of public spending in Western countries. The French healthcare system is very effective but the country ranks poorly on administration and primary education; this should be an avenue of discussion for future debates. But as expected, her conclusion falls wide off the mark: France needs a mixture of radical spending cuts and massive tax reductions to have any hope of recovery. Of course, the double-dip recession currently experienced by the UK coalition government and dismal failure of austerity policies in Greece are not to be addressed. Ms Pedder has been living in France for over a decade but some comments on her host country and its inhabitants resemble economic racism: apparently, French people – like Greeks, some would say – are lazy “spoilt brats” who often consider work as “the enemy”. The hundreds of Arcelor Mittal workers currently fighting for their jobs in Florange would certainly agree.

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