Sunday, 29 January 2012

Do Hollande and French voters know that there is no Magic Wand?

The end of the age of belt-tightening?
So, here we are, just a few short months away from the possibility of François Hollande becoming president of France. His substantial poll lead is holding up for now, and Sarkozy is plainly rattled. But even a week is a short time in politics and Hollande's campaign and policies shall come under much closer scrutiny from the moment Sarkozy finally declares his candidacy.

Indeed, there are already mumblings, rumblings and doubts about how he is going to be able to pay for his more ambitious plans, and people are worried about the possibility of him being forced to do a U-turn on some of his promises once in power. He is surely aware of this, and to his credit he has announced a series of measures designed to satisfy the many voters who are fed up with Sarkozy's refusal to get the rich to contribute more to help the economy.

He has decided that he would embark upon a short-sharp-shock 18-month campaign of cutbacks in tax reduction mechanisms and increases in the various taxes and charges paid by companies if elected, and these measures would be mainly aimed at major companies. This is a good idea in theory - after all, those companies would be able to absorb the effects of increased contributions - but you have to ask yourself if this policy would result in cutbacks in employment and investment designed to offset them, particularly at a time when growth is weak and the economy is almost in recession. Still, there is no such thing as a risk-free strategy here.

Another idea which will please many voters and raise cash is his plan to reduce tax breaks and increase basic tax rates on richer households. Proposed measures include less favourable succession rights, more income tax, and the suppression of the much-hated 'fiscal barrier' offered by Sarkozy as a freebie for the more well-off.

But those measures alone will not be enough to get debt levels down to an acceptable level. The question is, does he accept that to be the case? Maybe he does to an extent, because some of his proposed policies will certainly not please ordinary working people.

For instance, he says he would reduce France's dependence on nuclear energy by slashing its percentage of national production from about 75% to 50%. Fair enough, but this means replacing that energy by developing renewable energy, which means a lot of investment spending on renewable sources and a corresponding hike in electricity bills, 99% of which are paid by average French citizens.

He also wants to suppress the detaxation of 35-hour week-based overtime. That will save him a small amount, but it will also put pressure uniquely on working family budgets, and not the rich. Another plan is to raise retirement contributions to help make possible a return to retirement at 60. Again, ordinary people will pay because the rich don't even pay into that system. And who exactly will pay for the 60,000 new education posts he says he will create?

Finally - although there are many more examples - he has announced his intention to introduce a tax of about €5 - €6 on every computer user in order to help fight illegal downloading. Those who do not download illegally will surely fail to appreciate that. He also wants to tax Internet providers and big net companies as well as hard and software manufacturers for the same reason. And how will they all recuperate those costs? By passing them on to the consumer of course.

There has also been much talk about getting the markets and the banks to do more. After all, the vast majority of people would like to see that happen. The bad news here is that there's not much sign of that happening yet, and what little he has considered is more of a token gesture than anything else. Hollande is obviously aware of what expressions such as 'capital flight' mean.

My feeling is that Hollande knows that he has been let off the hook up until now, and that the real fighting has yet to begin. And when it does, he is going to have to persuade voters that he can simultaneously get the economy back on course and spread out the pain more evenly. But pain there will be, for everyone, and both Hollande and French voters are going to have to accept that there is no such thing as a magic wand which can obviate the need for continued belt-tightening.

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