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2012-10-02 08:49:48
Sep 28th 2012, 16:41 by S.P. | PARIS
THE French government has hailed its 2013 budget, unveiled on September 28th,
as the most important effort made for 30 years . The good news is that it
demonstrates a firm commitment by President Fran ois Hollande and his Socialist
government to keep to its deficit-reduction promises. The less good news lies
in the balance of taxes and spending that it uses to get there, its
over-optimistic growth assumptions, and the political slight-of-hand in
presenting this as a package that soaks only the rich.
First, one cheer for the determination to stick to a reduction of the
government s budget deficit to 3% in 2013. France has not balanced a budget
since 1974, and does not enjoy a strong track record in keeping to reduction
targets. The trio in charge Mr Hollande, Jean-Marc Ayrault, his prime minister,
and Pierre Moscovici, his finance minister are all well aware that France s
credibility is on the line. They have each repeatedly stated in recent weeks
that the country would do what it takes to keep to its promises. In a televised
interview this week, Mr Ayrault described it as a matter of national
sovereignty, since it is a means of reducing France s reliance on the bond
markets. In unveiling tax rises and spending cuts totalling 30 billion, Mr
Moscovici has shown that France s Socialist government is serious about fiscal
consolidation.
Less satisfactory is the balance of the effort in the 2013 budget: two thirds
of the savings are to come from tax increases, and only one third from spending
cuts. Mr Moscovici says that, starting in 2014, the balance will shift to
50:50. Yet France is a country where public spending already accounts for 56%
of GDP, more than even in Sweden, and where the overall tax take in the economy
is considerably higher than in Germany. The 20 billion of tax increases are
concentrated on big companies and on the rich. France will bring in a new 45%
tax rate for incomes over 150,000 ($193,000) as well as a top rate of 75% for
incomes over 1m. This latter rate, which Jean-Paul Ago, head of the L Or al
cosmetics giant, this week said would make it almost impossible to attract
top talent to France, will apply only for the next two years, according to
current plans. Education, security and justice are spared the 10 billion of
spending cuts. Most of the effort will instead fall on the defence budget,
culture, agriculture and the environment.
All this may still not be enough, however, for France to reach the 3% target
next year. This is because growth has come to a halt and few economists expect,
as the government does, GDP growth in 2013 of 0.8%. The new government has
already revised its forecast downwards once. The French economy has now
registered three successive quarters without growth. If there is zero growth in
2013, according to the Cour des Comptes, the national audit office, France will
need to make overall budget savings of 44 billion. This would require either
extra measures next year or a plea for more time.
Speaking on prime-time television, Mr Ayrault insisted this week that his 2013
budget spares the middle-classes and the less well-off: the only ones who lose
out, he said, are the richest 10%. It is certainly true that, in terms of
income tax, the burden falls wholly on the rich. Yet Mr Ayrault may be stoking
up problems by himself with such claims. For the French know full well that
other measures in the budget hit everybody, including increases in taxes on
cigarettes and beer, and that the government has already voted an end to
tax-free overtime, which directly affects the squeezed middle. In this budget,
the new government has shown a certain resolve. But, in failing to be totally
straight with voters upfront, Mr Ayrault may find it even harder to confront
them with more bad news further down the line.