Nothing seems to work. Squeezing the French has reached its limit.
By Wolf Richter
The French habitually appear to be on the verge of having had it. But
the incidents have been getting denser, more frequent. There were the protests
in the Bretagne and elsewhere, followed by "operation snail" where
2,100 heavy trucks drove side by side down major expressways at a snail’s pace,
with everyone behind them going nuts. Every day, there are protests organized
by different organizations. On Thursday, the farmers went to town, to Paris
more specifically. They were getting there by driving their tractors on major
highways, setting up roadblocks as they went, snarling traffic for miles.
They’re all protesting the relentless
onslaught of new taxes. At first, buoyant from an election victory, President
François Hollande and his government went after the rich then quickly hit even
modest households, farmers, truckers, craftsmen, everyone who does or buys
anything. Because it’s never enough. In January, the Value Added Tax hike will
take effect. For the top tier of items, the VAT will only increase from 19.6%
to 20%. But for some of the lower tier items, it will be jacked up massively.
For example, for the equestrian industry, the VAT will jump from 7% to 20% –
hence the protests the other day.
Now the farmers have had it. While at it,
they’re also protesting EU rules on how they should run their businesses and
anti-pollution laws that would limit the use of tractors on some days. The word
"insurrection" is showing up in the media, though it's still more an
exaggeration than a description. "Fiscal discontent” is better, but not
broad enough.
After 18 months in office, Hollande's ratings
have plunged to the lowest levels of any president since 1958, according to an Ifop/JDD poll,
the only poll going back this far. A mere 20% of the French were satisfied with
him; 17% among workers and employees; 15% among merchants and craftsmen. Even
his erstwhile supporters have abandoned him.
And 79% were dissatisfied.
Cited were "social desperation" of the people affected by his
policies, but also his leadership qualities, his apparent "inability to
decide," his "lack of discipline," his tendency to make
decisions and then, when the volume gets too loud, withdraw them. It leaves the
country rudderless.
Who could do a better job? Maybe Santa
Claus.
Because no one else seems to be able to, in the eyes of the French. Turns out, 74% think that any of the
major figures of the UMP, the party of former President Sarkozy, would do worse
or no better. And on the right-wing where Marine Le Pen reigns with her
National Front (FN)? 79% of the respondents think she’d be worse or no better
than Hollande. There simply is no savior in sight. Much less a solution.
Spending by the government accounts for
more than 56% of GDP, the highest in the Eurozone. Even thinking about cutting
these outlays would be political hara-kiri. To fund this public mastodon and
bring the deficit down to 3% of GDP by 2015, and into compliance with EU
stability criteria – it would require a miracle – taxes must be extracted from
everyone and everything in the anemic private sector.
But the math just shot craps.
Despite incessant tax increases, the
government just confessed that revenues would be about €11 billion less
than expected. The shortfall was spread over VAT, income taxes, and
corporate taxes. French pundits are now talking about “fiscal saturation,” the
point where raising taxes will lead tolower tax revenues, as
struggling households and businesses will jump through hoops to limit the taxes
they pay. They might work off the record, cut back on purchases, or move
business entities to other countries. One of many brutal disappointments for
Hollande. Nothing seems to work. Squeezing the French has reached its limit.
French businesses already pay a total of
64.7% of their pre-tax income in taxes, according to the just released report
by the World Bank and PwC (PDF). The report compared 189 countries and measured total taxes paid in
2012 – including income taxes, payroll taxes, employer paid “social" taxes
for healthcare and retirement systems, real estate taxes, capital gains taxes,
etc. – as a percent of pretax profit. France’s total was the second highest in
the EU, after another economic star, Italy, and far above the EU average of
43.1% and the worldwide average of 41.1%.
In France, labor is taxed the most, with
employers paying breath-taking 51.7% of their pretax profit in payroll taxes,
the worst in the EU and possibly in the universe. Income taxes eat up only 8.7%
in pretax profits. As anywhere, sagging profits and a myriad of deductions,
loopholes, credits, and other devices allow most companies to get around high
tax rates. “Other” taxes consumed another 4.3% of pretax profits.
Confiscatory payroll taxes do one thing
very well: stop job creation in its tracks.
Companies are hurting. Of the 15,000
privately held companies that a recent study by
accounting and audit association ATH analyzed, 20% lost money in 2012. Over the
period between 2008 and 2012, revenues inched up a total of 7%, not even enough
to keep up with inflation (8.8%). Net profits plunged 18% during that time.
This “permanent degradation” is endangering the survival of many of these
companies and is crimping “the investments necessary for the competitiveness
and sustainability of these companies," the report observed.
Driven to desperation by the morose
economy, the abysmal poll numbers, the tax quagmire, and mounting anger on the
street, Hollande’s government is going to attack the problem decisively and
head on: another tax reform! This time, Prime Minister Jean-Marc Ayrault wants
to start from scratch. A mega project would take up the remaining three and a
half years of Hollande’s term. Hope? In the same breath, he said that it would
be revenue neutral! They just don’t get it.
Revenue neutral isn't going to help the
economy. Households and smaller businesses need room to breathe. Yet, bad as it
is, no one believes it. Because in France, taxes have the insidious habit of
creeping up relentlessly.
These are among France’s real problems.
But now France's Financial Markets Authority decided to hound bloggers who’d
dared to doubt the veracity of the sacred balance sheets of the even more
sacred French megabanks – including Mike “Mish” Shedlock in the US. It’s
getting curiouser and curiouser. Read.... Gagging Doubt: French Crackdown On (American) Bloggers Who
Question Megabank Balance Sheets
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