Friday, July 13, 2012

The New French President Intends To Grow Government and Raise Taxes

Hollandism Begins tells the story of the recently elected new French President Francois Hollande's plans to raise taxes in order to balance the budget. To which I say with tongue firmly planted in cheek, good luck with that:

"France's national audit office warned Wednesday about the "preoccupying state" of the public fisc. Spending has increased to 56% of GDP from 52.6% in 2007, while revenues have only risen to 50.8% from 49.9%. The deficit "remains at double the level that would stabilize the debt," now nearly 90% of gross domestic product. Economists forecast growth of 0.3% this year.

Hours later, Finance Minister Pierre Moscovici unveiled his Socialist government's proposed cure, and we'll grant it this: It's as faithful a reflection as any of the current Keynesian consensus that the best "austerity" starves the private economy through higher taxes so the government can use the money to finance "growth." If this experiment fails, so does the economic model that inspired it....

Wednesday's budget would also cancel the previous government's rebates on social security "contributions," which benefit workers earning up to 210% of the minimum wage. This Sarkozy-era tax break is being axed because it helps services and financial companies more than industrial and auto firms. The Hollande government also intends to raise the "social forfeit" employers pay on their workers' private pension funds to 20% from 8%. This one is intended to "pay" for Mr. Hollande's decision to lower the minimum retirement age to 60 from 62. . . .

It's true that the new budget isn't entirely spendthrift. Mr. Hollande cut salaries for himself and his ministers by a third. That should save about €2 million tops—out of a budget of more than €1 trillion.

Most ministries are also under orders to reduce spending by 2.5% immediately, though Mr. Hollande still plans to hire 60,000 new teachers. Meanwhile, France will contribute to a pan-European infrastructure blowout of €120 billion using EU funds and the European Investment Bank.

So Hollandism begins. When Fran├žois Mitterrand came to office 30 years ago he also foisted a socialist experiment on France that nearly brought the country to ruin. In the end, Mitterrand learned his lesson. Will Fran├žois Hollande?"

My Take

Most Europeans refuse to recognize the untenable situation they have created for themselves by placing all their bets on big government and the ever growing welfare entitlement state.

The French led the way with the 35 hour workweek and then later tried something sensible by raising the retirement age minimally from age 60 to 62. Now they've elected a new socialist president and they're reducing the retirement age back to 60 again.

Government spending in France accounts for more than 50% of GDP now, and its national debt will soon exceed 100% of GDP.

Yet the proposed "solution" of newly elected President Hollande is to achieve "austerity" by increasing taxes and government spending.

For those wondering about how that raise taxes and entitlements at the same time "solution" would work here in the U.S., just take some time and watch France in the months and years ahead.

But be sure to watch them before they implode or otherwise descend into absolute chaos or arrive at a financial meltdown, that is.

Thanks. Bob.

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