“I am in a battle and will not look back. I am setting up a calendar … two years to create a policy for work and competitiveness. I am accelerating.”
~French President Francois Hollande
In order to meet standards set by the Eurozone to manage deficits … President Hollande has followed through on his promise not to shoulder the burden on the middle class. He has done this primarily by enacting tax increases for businesses and millionaires while cutting spending in social services; increases in taxes make up 60% of the budget gap. The French game plan can be summed up in three words: Soak the Rich.
Let’s look at what the budget does (all in Euros):
- $10 billion will come from tax increases on anyone making more than $1 million Euros a year
- $10 billion will come from tax increases on businesses
- $4 billion will come from reducing debt payments
- $2 billion will come from taxes on dividends and bonds
- $12.5 billion will come from spending cuts.
And all of this after President Hollande reduced the retirement age from 62 to 60 for anyone who entered the work force at the age of 18 (source).
Reuters has the news HERE:
Socialist President Francois Hollande’s 2013 budget amounts to France’s toughest belt-tightening for 30 years as the debt crisis takes its toll on the euro zone.
The package aims to narrow France’s deficit to 3.0 percent of national output next year from 4.5 percent this year, bringing in 30 billion euros ($39 billion) for the treasury.
But the budget dismayed business by opting for tax hikes — including a 75 percent tax on those earning over one million euros a year — by holding public spending and not cutting government jobs.
With Hollande facing record unemployment and economic stagnation, there were also fears the deficit target will slip as France falls short of the modest 0.8 percent economic growth rate on which it is banking for next year.
The Economist applauds the French focus on balancing the budget even if it doesn’t agree with how they address the deficit HERE:
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.
But the unemployment situation that President Hollande inherited isn’t good. Only time will tell whether or not he will be able to run around the unemployment problem that’s discussed by the BBC HERE. This is an excellent opportunity to showcase whether or not socialist ideas work or not; France will be an excellent petri dish.
