France elected a socialist president in May and on September 28 his government delivered its budget for 2013 proclaimed as the “most important effort made for 30 years”. It has been praised because French President Francois Hollande with his Prime Minister Jean-Marc Ayrault and Finance Minister Pierre Moscovici, have kept their deficit reduction pledges. Others have questioned the balance of taxes and spending and the over optimistic growth predictions.
France hasn’t balanced a budget since 1974 but Hollande and his team says it’s determined to see a reduction of the government’s budget deficit by three per cent in 2013. I asked Parti Socialiste MP Axelle Lemaire, who was elected for France’s new Northern European constituency in June – a constituency that includes the UK – for her take on the Hollande budget.
Eade: Francois Hollande was elected on a promise of promoting recovery by growth rather than cuts: if France misses its moderate growth target how will this be achieved?
Lemaire: The proposed 2013 budget, unveiled last week, lays on two principles: responsibility and jobs. When François Hollande took office in May, he asked for a general audit to the politically independent accounting body Cour des Comptes. Its conclusion was much worse than anticipated, unveiling a tremendous 30 billion Euro gap in the previous government's budget estimate. Fulfilling France's European commitments of deficit reduction was an imperative for François Hollande, as much as supporting the economy, jobs, and the French welfare state. To a large extent, this Budget is a difficult but realistic balance between deficit reduction and measures supporting employment and demand. The aim is to promote competitiveness and social fairness while asserting France’s fiscal responsibility and credibility. Growth comes with jobs, innovation and access to credit, three pillars of this Budget.
Eade: The other promise was to create jobs: Laurence Parisot, of the Medef employers group says he fears this budget as it will damage competitiveness – so how will Hollande’s government create jobs?
Lemaire: It would be surprising to hear something different as this Budget asks for a contribution from everyone, particularly large companies and well-off households. However, the budget Minister insists that these contributions will be limited in time, to cope with this difficult economic situation. An improvement of the economic climate and access to credit is good for French companies. The government will support SMEs, one the largest job creators in the country, through various incentives. The creation of a Public Investment Bank devoted to investments in R&D, infrastructure projects and SMEs aims to boost France's competitiveness, a key condition to growth. Hollande's pledge to protect jobs despite limited margins finds concrete applications with the creation of 340,000 subsidised jobs, the construction of 100,000 social housings, a renewed effort in education with 60,000 new staff. Supporting demand, jobs and competitiveness in these very difficult times against austerity, cuts or a dismantlement of the welfare state - that’s the responsible pro-growth agenda that the government has chosen.
Eade: The 75 per cent tax levy on those earning over one million euros appears to be more symbolic than raising any major amounts – millions rather than billions. Is it a “we are all in this together tax” and do you expect to have new high wealth French citizens as constituents as they flee France?
Lemaire: Yes, as a nation, we should face these tough times all together. Job losses destroy families. Paying higher taxes exclusively on salary income, for a predefined, exceptional amount of time, does not. Some understand this very well, and set the example. I pay tribute to them. For the rest, the problem is not tax exiles, but tax competition in Europe and particularly tax-havens. A stronger harmonization is needed. Job creation, innovation, competitiveness and fairness remain the main focus of our action.
(The above article was published in the London Progressive Journal on October 20 2012)