French Tax Revolts

Courtesy of Pater Tenebrarum, Acting Man

They're Not Taking It Anymore

France's socialist president Francois Hollande, the 'welfare State incarnate' (h/t Gaspard Koenig), is in trouble. Not only has he has become the president with one of the lowest ever recorded approval ratings at a mere 15%, he apparently even feels it necessary to dispatch jackbooted goons to oppress those who are expressing their disapproval of him publicly. Incredibly, if one demands Hollande's resignation, one seems to be guilty of the crime of insulting the president as Mish reports.

Nevertheless, the French have never been known to take any unpopular policies dished out by their politicians lying down. Few people are as quick as the French to take to the streets to make their displeasure known. This is both a blessing and a curse, as it sometimes stands in the way of unpopular, but necessary reforms.

However, this time, the French are demonstrating over an issue that is well worth their displeasure: namely the relentless increase in regulations and taxes Hollande's government has subjected them to. According to a recent Bloomberg report, farmers are but the latest group to rise up in protest:

“French farmers snarled traffic into Paris as they drove tractors onto highways to protest against taxes and new regulations.

A total of seven roadblocks were up in the Paris region, according to the website of DiRiF, which runs the area’s road network, and which advised commuters to take public rail transport. Television news channels showed long lines of blocked traffic under rainy skies and near-freezing temperatures.

“I don’t think this is the right way to express one’s views,” Agriculture Minister Stephane Le Foll said in an interview in Le Figaro newspaper. “We are always open to dialogue.”

The action is the latest in tax revolts in France, which in recent weeks has seen horse-riding clubs, truckers and small retail outlets protesting against increased levies by President Francois Hollande’s government. Hollande, who’s seeking to narrow the government’s budget gap, has become the least popular French leader since 1958.

Today’s protest was called by farming associations in the Paris region. In addition to nationwide issues such as a proposed trucking levy and a higher value-added tax on fertilizer, the farmers are angry about anti-pollution laws that would limit tractor use on certain days. They’re also opposing changes to the European Union’s Common Agricultural Policy that will increase spending on livestock to the detriment of cereal farms, which predominate in the Paris basin.”

To this it should be added though that farmers in the EU are among the most heavily subsidized groups, with France the most vocal supporter of the EU's giant and wasteful agricultural subsidization schemes.

What is demonstrated here are two things: on the one hand, there is a limit what those who draw the short stick in terms of onerous taxation are willing to endure – see the fact that tax revolts have now become a widespread phenomenon, while the rich as well as many of the most productive citizens are simply fleeing the country.

On the other hand, the government is a captive of having bought off voters for decades with handouts that can now no longer be financed. If Hollande tried to cut spending, he would face protests as well. Once people become used to government handouts, they no longer are willing to do without them. Since the tax payers are by now probably a far smaller group than the tax receivers, he has decided to rather tussle with the former.

Squeezed Government

Bloomberg continues:

“Hollande is squeezed between pressure from the EU to cut the budget deficit and an electorate facing one of the world’s highest tax burdens.

Prime Minister Jean-Marc Ayrault this week said that while the government won’t back down on the VAT set to take effect in 2014, it will consider overhauling the tax system.

The French government collects 46 percent of gross domestic product in taxes. Standard & Poor’s estimates that government revenue amounts to 53 percent of GDP, once fines, dividends and other income are included — more than any country outside Scandinavia. French state spending totals more than 56 percent of GDP, the highest in the euro area, it says.”

One problem is that France seems long past the point on the 'Laffer curve' where raising taxes any further makes sense even from the government's perspective. As French budget minister Bernard Cazeneuve was recently forced to admit, tax revenues came in € 5.5 billion lower than expected in 2013, due to a surprise decline in corporate tax receipts.

In times past, the government could simply rely on a mixture of debt issuance and debt monetization and currency debasement on the part of the central bank to keep up appearances. Under the euro regime and the associated treaty obligations regarding the permitted maximum of the public debt-to-GDP ratio, this is no longer possible. Or let us rather say: it is not at easy as it once used to be, as the French National Bank can no longer independently impose an 'inflation tax' on the citizenry´or keep up the pretense that the government can 'never default' on its debt due to the printing press (a comforting fiction upheld in all countries that have their own central bank).

The Maastricht criteria (or the new, even more stringent 'fiscal compact' criteria that are supposed to replace them) are unenforceable anyway, but every large scale sovereign debtor in the euro area probably lives in mortal fear of the markets since 2011 at the latest.