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France’s Only Policy Idea: Raise Taxes


The French economy is in trouble. It shrank in the last two quarters of 2012 (in spite of promises that the economy would grow thanks to more taxes and more government spending) and more than 3 million men and women are now out of work. Unemployment has increased for 22 months straight, it could soon reach a record of 10.8 percent, and it is two to three times higher among those between 18 and 25. And yet, as the Wall Street Journal reports this morning, with this data in hand, the French finance minister Pierre Moscovi has decided that the best course of action for France is to raise $7.87 billion in additional taxes in 2014. His target is the value-added tax and the corporate tax, which can be expected to have long-lasting negative effects on the economy. 

Mr. Moscovici will present France’s stability program to the European Commission on Wednesday. He has already warned that France will only be able to bring down its deficit to 3% of gross domestic product next year, rather than this year, because growth will be lower than initially forecast and the government “doesn’t want to conduct austerity policies” that put the economy in danger of entering recession.

Mr. Moscovici, speaking in an interview with France Inter radio, was responding to a report in French business daily Les Echos that tax revenue would increase to a record 46.5% of GDP next year.

The French government will also target some tax-break schemes, Mr. Moscovici said, without elaborating.

The minister declined to comment when asked whether the French economy had contracted in the first quarter of this year.

And of course the French government is still looking into ways to implement a top income-tax rate of 75 percent on high-income individuals after the country’s top constitutional authority scrapped the plan. The French government does give a new meaning to the saying, “if it moves, tax it,” but it will not achieve economic growth or deficit reduction this way. The good news for France is that successful fiscal adjustment is possible: It requires the implementation of a package that’s mostly based on spending cuts, and accompanied by policies that increase competitiveness. The French government should try what works for a change. 


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